Some frequently asked questions about 401(k) plans include concerns about when all contributions are vested and when employees can withdraw money from the plan, according to Investopedia. Account owners also often want to know whether they can take loans or hardship withdrawals from their plans to cover large expenses.
Employee contributions to a 401(k) plan vest immediately, meaning that employees can take their money with them any time they leave the company. Employer contributions vest according to the rules of the individual plans, explains Investopedia. Some employers vest 25 percent of their contributions for each year of employment until all contributions are vested. In these plans, employees lose a portion of their employers’ contributions if they leave the company after a short time.
In most instances, account owners who withdraw money from their 401(k) accounts before they reach age 59 1/2 face a 10 percent penalty in addition to regular income taxes. Some plans allow employees to take loans from their plans, and account owners must repay the loans within five years, adds Investopedia. Most plans let account owners take hardship withdrawals for large expenses, such as medical costs, college tuition or the purchase of a home. Employees often owe an early-withdrawal penalty on those distributions, although it depends on the reason for the withdrawal.