Withdrawing Money From Your Pension (401k) Plan

When you first start earning a decent wage it can be hard to put aside a portion of it each month, especially when there are so many things you would like to buy and enjoy yourself with.

This is one of the main reasons why young people choose to delay starting a pension plan, because to them retirement is still 30-40 years away, which to someone in their twenties is a lifetime away.

As a result, putting aside some money each month in the form of a 401k pension plan almost seems like they are wasting it, because they feel as though they will never see it again.

However creating a 401k pension plan doesn’t necessarily mean you will not be able to draw upon the money you have saved. It still is available to you, but it comes at a price.

Borrowing Against Your 401k Pension Plan

Many employers will allow you to borrow against your 401k pension plan, which means if you need the money you can take a certain amount out and it will be deducted from your pension plan when you retire or leave that company.

Most will also give you the option of repaying what you have taken out, should you be able to afford to do so at a later date.

However it should be pointed out that not all employers offer such a loan programme, which means that if this is not an option for you, then you will have to wait until you leave the company before you can withdraw any money.

Having to leave your job in order to have access to the money in your 401k pension plan might seem unfair to some, but it does help to prevent people from drawing out their money early and then leaving them with nothing when they retire.

Pension (401k) Hardship Withdrawal

The only time you should need to draw out your money early, would be if you were struggling financially. As a result, some companies allow 401k pension withdrawals for hardships to help you recover and get back on your feet.

This money can then be repaid at a later date should you choose to do so, but in order to qualify you must be able to show your employer that you really need it.

It is also worth bearing in mind that if you choose to leave your job so that you can access the money saved up in your 401k pension, all your money might not be available to you immediately.

This is because it can sometimes take up to three months for your share to be calculated and allocated to you.

Penalties For Early 401k Pension Withdrawals

Regardless of when and why you take money out of your 401k pension plan before you retire, you will have to pay quite a heavy fine for doing so. This rate is usually around 10%, and the money will be taxable.

As a result, taking your money out early can result in you loosing a significant chunk of what you have spent so long and hard trying to save.

For this reason many people choose not to withdraw their money early, but as was mentioned previously, the state of the global economy and the prospect of massive currency devaluation, is making more and more people consider biting the bullet and withdrawing it before they retire.

One of the leading financial experts in the world Gerald Celente has been recommending for quite some time people do exactly that, and get out now before it’s too late.

Overall a 401k pension plan is a good way to set aside money and help to ensure financial security when you retire.

So whether you are considering starting up a 401k pension plan, or have been contributing towards one for many years, it is recommended that you research this subject thoroughly and then decide whether or not it is still the best option for you and your future.

Vesting

Vesting is a term used to describe the amount of time you have to work at a company, before you are entitled to contributions made to your pension plan by your employer.

There are two types of vesting, cliff vesting and graduated vesting.

Cliff Vesting

Cliff vesting means you must work with your employer for a certain amount of time, before they will make a contribution towards your pension plan.

This period is usually 5 years, although it may vary depending on what organisation you are working for.

What this means is that if your company offers 5 years cliff vesting, and you leave after working with them for 4 years, then when you leave you will only have what you contributed towards your pension plan.

If however you leave after 5 years, then you will also have what your employer has promised to match.

So this is something definitely worth knowing, as if you are thinking of leaving your current employer it is always best to do so after you are vested.

Graduated Vesting

Graduated vesting means that you only receive a full contribution towards your pension from your employer after a certain amount of years. Before this period, you are incrementally vested.

For example, if you stay with your employer for 3 years then you will be 20% vested, after 4 years you will be 40%, after 5 years you will be 60% and after 7 years you will be 100% vested.

Graduated vesting tends to make more sense if you are not sure whether or not you will stay at a company for a long period of time.

This is because if you choose to leave earlier then at least you will have some contribution from your employer, whereas if you left earlier with cliff vesting, you would get nothing.

If however you know you will be staying at that company for a long period then cliff vesting would be the more attractive option, as you will be 100% vested earlier.