To help employees more easily save for their retirement, the Internal Revenue Service provides a number of tax benefits for 401(k) participants. But, with those benefits come specific rules on when and how you can withdraw your funds while you’re still employed. After all, the goal is to use those savings for income once you retire. Luckily, there are exceptions for certain circumstances.
With an in-service distribution, you can access your vested account balance for a cash distribution or rollover. To be eligible at Guideline, you must generally be at least age 59 ½ and meet other qualification guidelines.
Here are answers to common questions and information you should know before taking an in-service distribution from your 401(k).
What are the qualification requirements for an in-service distribution from a Guideline 401(k)?
To be eligible for an in-service distribution, you must be at least 59 ½ years old and still an active employee of the company sponsoring the 401(k) plan.
While not every retirement provider offers in-service distributions, they are available from all Guideline 401(k) plans. There are no transaction fees for this service.
What if I don’t qualify for an in-service distribution?
If you do not meet the requirements for an in-service distribution, either because you are not yet 59 ½ or you are no longer employed by the sponsoring company, then you may have several other options for completing a distribution.
Depending on your circumstances, if you are still employed, you may be eligible to take out a 401(k) loan or apply for a hardship withdrawal. If you are no longer employed, you are eligible to take a full distribution of your entire account balance.
What form can an in-service distribution be in?
An in-service distribution can be taken as either a cash withdrawal or rolled over to an IRA or another eligible retirement plan.
How much can I withdraw with an in-service distribution?
You have the option to withdraw your entire vested balance or just a portion from your vested funds.
Are there tax consequences or penalties when taking an in-service distribution?
If you rollover your in-service distribution into an eligible plan or IRA, no withholding will apply and the distribution will not be included as taxable income until you take a cash distribution from the account you rolled the funds into.
However, if you take a cash distribution, Guideline is required to withhold 20% of the taxable amount for federal taxes (along with state taxes, where applicable). While you can elect to have a higher percentage withheld, you cannot elect less than 20% or waive this withholding. The taxable amount of your cash distribution will be included as taxable income for the year in which you took the distribution.
In January of the year after you took the distribution, you will receive a Form 1099-R to be used to report the distribution when filing your taxes. Since you must be over the age of 59 ½ to take an in-service distribution, you will be exempt from the 10% early withdrawal penalty tax.
How can I request an in-service distribution?
Once eligible, an in-service distribution form will automatically become available in your Forms & Templates folder.
Once you complete the form, you can submit it via our secure portal within the Shared Files section of the Resource Library. Then, contact our participant support team to let us know about your submission so we can get started on your request.
How long until I receive my in-service distribution check?
Standard processing and shipping takes approximately 4-6 weeks after you submit the form and notify our team about your request.
This information is for general education purposes only and not intended to be tax advice. We encourage you to consult a qualified tax professional before requesting a distribution.