A lot of people are confused about
how, exactly, they can use or withdraw funds from their 401(k) plans. There’s a
good reason for their confusion too since plans usually vary in the details.
Some employer-offered plans, for example, allow regular withdrawals from 401(k) accounts after retirement. Other plans do not allow regular withdrawals at all,
but, even among those that do, there are still variations. For example, some
plans allow monthly or quarterly pre-scheduled withdrawals while others allow
withdrawals whenever the account holder wants to make them.
The types of plans mentioned above
are obviously of the more flexible variety; unfortunately, though, the vast
majority of plans aren’t that flexible. There are plans out there that don’t
allow you to make withdrawals on a regular basis and only give you the option
to leave your money where it is or take it out in one lump sum.
If you have one of the more flexible
plans, you have a variety of options. If you have one of the more rigid ones,
your options are a bit more limited, but you do still have them. For example,
one of the best things you can do is to roll your 401(k) into an IRA. Then, you
won’t be required to pay any taxes on your money until you make a withdrawal,
and you’ll be able to make a withdrawal schedule or just take your money out as
needed.
For those with the flexible plans,
be aware that things aren’t always as good as they seem! While it’s nice to be
able to withdraw money regularly or even whenever you want, your account may
come complete with a steep transaction fee which you pay each time you make a
withdraw. This transaction fee can sometimes be as high as $50 or more per
transaction, so make sure you know the specifics of your account and are
withdrawing smartly and with all full knowledge of all costs and fees in mind.
And, though we’re on the subject of
withdrawing money, remember that, when possible, it’s always best to leave your
money right where it is- In your 401(k) plan. That way, you may be able to
access low-fee mutual funds, stable value funds, and many other benefits. Only
roll over your 401(k) if it’s going to be in your best interest, and try to
withdraw money as infrequently as possible, no matter what the rules and
stipulations are for your account. This strategy is what is likely going to
benefit you the most in the long run.
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