In Service Distribution from 401(k) Plan
IRS rules permit something called an in-service distribution from several types of qualified retirement plans including 401(k) plans. An in-service distribution is one made while the employee continues to work at the company. In other words, you don’t have to separate from employment, that’s code for quit, retire, or get fired, in order to take your money out of your current 401(k) plan under certain circumstances.
Note that an in-service distribution is different than a hardship distribution which requires the employee to meet certain requirements and in most cases, for the money to be spent for specific uses only.
There are two ways an in-service distribution works. The most common is for employees who are age 59 ½ or older. Since these employees have already met the retirement age necessary for penalty-free withdrawals from a 401k, they can take some or all of their 401(k) money for any purpose they choose.
The other type is for employees who have not yet reached retirement age. For these employees, an in-service withdrawal is rolled into another qualified retirement plan. There is not age minimum required for this type of withdrawal since the transfer is not considered an early withdrawal if made by someone under age 59 ½. However, be certain that you have the right kind of account to transfer the money to, like an IRA, or else you may have to pay taxes and a 10% penalty on any withdrawal.