Dear Dan, I must be missing something. I don’t want to take a loan against my 401(k) because the interest rate charged is too high, but my plan representative says a loan is the only way to get to my funds. Is that true? Are loans the only way to access 401(k) funds? Dear reader,
The law provides for many ways to access funds in a 401(k) plan but, it may very well be true that in your circumstance, a loan is the only way for you to tap your 401(k) account. The distribution rules for 401(k)s and other retirement plans are intended to discourage participants from accessing funds prior to retirement so that the funds can accumulate. Plans must follow the rules or risk sanctions including fines or plan disqualification. Plans cannot permit distributions until there is a distributable event. What constitutes a distributable event can vary from plan to plan but all plans must allow distributions at the participant’s death, disability, or if the plan terminates. Most plans allow you to take a distribution when you stop working for the company sponsoring the plan. However, under Federal law, your plan can prevent you from beginning to receive bene …
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