- Individual employers set specific policies for their 401k plans, and often covering withdrawals and rollovers when an employee leaves the company. While you can rollover your 401k balances if you leave your job, some employers require you to withdraw or rollover your balance if it is less than a set amount. The guidelines of the individual plan may also dictate if you can cash out part of the balance and rollover the rest.
- If you are employed at the company that holds your 401k, withdrawing funds can be difficult. This discourages impulse withdrawals that will erode the value of the employees' retirement benefits over time. An employee cannot roll funds to another plan while still active with the company. Most 401k plans allow access to the funds through loans, and may also allow hardship withdrawals under certain circumstances.
- When leaving a company, the employee can take the balance of his 401k in cash. The plan will withhold 20 percent of the amount to cover income taxes on the withdrawal that will be assessed at the regular income rate. In addition, the IRS will charge a 10 percent penalty of the amount withdrawn. If the plan holder deposits the proceeds into a qualified retirement plan within 60 days, he can avoid taxes and penalties on the amount rolled over. By rolling over part of the money withdrawn, he will accomplish a partial rollover and partial cash withdrawal.
- IRS guidelines allow an employee to do a direct transfer of his 401k funds into a qualified IRA plan. This is done with a trustee-to-trustee transfer, which any IRA account trustee can arrange. By doing this transfer, he will eliminate the 20 percent withholding on withdrawn funds. After the money is transferred, the account owner can withdraw any portion of the rolled over balance that he wishes. The withdrawal will then be subject to the taxes and penalties for early withdrawal.
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