Loan Provision

• Many 401k programs include a loan provision that allows workers to borrow against the balance in their plans. If your employer has a loan provision in place, you might be permitted to take a loan equivalent to a percentage of the balance in your account. When you pay back the 401k loan, you pay it back into your own account, allowing you to rebuild your retirement portfolio. One potential danger of 401k loans is that you could be required to pay back the loan if you leave the company before it is paid off.
  
  

Hardship Withdrawals

• Depending on your plan, you might be able to take hardship withdrawals from your 401k under certain circumstances. For instance, if you become disabled you might be permitted to pull money from your 401k. Some plans also allow participants to take hardship distributions to pay medical bills, make home repairs or cover the down payment on a first home purchase. You could face a 10 percent tax penalty on these hardship withdrawals, as well as ordinary income tax on the money you take out, so it is best to proceed with caution.
  
  

IRA Rollover

• When you leave your job, you can roll the money in your 401k over into a self-directed IRA. If you transfer the money directly from the custodian overseeing the 401k plan to the custodian taking care of the IRA, there are no tax penalties, and you can maintain the tax-advantaged status of the account. The best way to transfer the money is to contact the IRA administrator and request the proper paperwork. Once you submit the completed transfer form, the new custodian contacts the 401k company and starts moving the money over.
  
  

Age 59 1/2

• Once you reach age 59-and-a-half, you can begin taking distributions from your 401k plan, even if you continue to work. You can also roll the money over into a self-directed IRA account and start taking distributions from that account to meet your current expenses. When you start taking withdrawals at 59-and-a-half, you do not have to pay a penalty on the money you take out, but you do have to pay ordinary income taxes on any money you withdraw. It is important, therefore, to do some preliminary tax planning to determine how those proposed 401k distributions will impact your tax bill.