There are a variety of ways to access the money in your 401(k) account. All requests for distributions and loans must be done directly through Vanguard.
Not technically a distribution (a distribution is a permanent removal of funds), a loan allows you to borrow money from your account. The maximum loan amount may not exceed the lesser of: one half your account balance or $50,000.
The interest rate will be determined when you apply for your loan. You pay back both the principal and interest to your account. You also pay a loan origination fee.
The loan must be repaid within 5 years for a general purpose loan; up to 30 years for a loan taken to purchase a principal residence. Note: When requesting a loan for the purchase of a principal residence, you must provide supporting documentation, which can be the purchase or sales contract, signed by buyer and seller, detailing the purchase price and settlement date. Or you may provide the mortgage agreement, signed by mortgagee and mortgagor, accompanied by evidence of the closing date.
If you do not pay back your loan or stay current with your payment schedule, your loan will go into default. If any scheduled payment remains unpaid for more than 90 days, the entire outstanding loan balance will then be reported to the IRS as a taxable distribution, meaning it may be subjected to early withdrawal penalties and taxes.
There are two types of permanent distributions from the TAG 401k plan. Inactive participants are eligible to take a regular distribution of all or part of their account in the form of a cash distribution or a direct rollover to another account.
Active participants (members who have been working and eligible to contribute to the TAG 401k Plan anytime in the previous 90 days) may qualify for an in-service withdrawal in the form of cash.
To be eligible to remove some or all of your 401(k) Plan funds, you must:
1. Become an inactive participant
Inactive participants qualify to remove money from the account under the following conditions:
- Retirement (age 65)
- 90 Days After Termination of Employment
If you take a regular distribution before age 55 and do not roll your money to another qualified plan or IRA, you will pay a 10% IRS Early Withdrawal Charge and a 2.5% California penalty tax.
2. Be an active participant who qualifies for a “hardship in-service withdrawal” under the IRS’s regulations.
You may withdraw all or part of your salary deferral contributions (excluding interest) if you prove financial hardship.
The IRS defines hardship as an “immediate and severe financial need”, as described in the U.S. Department of the Treasury Regulations Section 1.401(k)-1(d).
401k In Service Distributions
Financial hardship withdrawals are taxable income. If you make a hardship withdrawal before age 59, you will also pay a 10% IRS Early Withdrawal Charge and a 2.5% California penalty tax (withdrawals for medical expenses may not be subject to this change). Salary deferred contributions will be suspended for 6 months.