I must be missing something. I don’t want to take a loan against my 401 because the interest rate charged is too high, but my plan representative says a loan is the only way to get to my funds. Is that true? Are loans the only way to access 401 funds?The law provides for many ways to access funds in a 401 plan but, it may very well be true that in your circumstance, a loan is the only way for you to tap your 401 account.
Plans cannot permit distributions until there is a distributable event. What constitutes a distributable event can vary from plan to plan but all plans must allow distributions at the participant’s death, disability, or if the plan terminates. In addition, 401s may choose to allow “in-service” distributions which do not require severance of employment but come with some restrictions. For instance, elective deferrals , including elective deferrals to a Roth account, cannot be distributed in-service prior to age 59 ½. However, plans may permit rollover contributions made into the 401 to be rolled out at any age. Again, that is if the plan document provides for such an in-service distribution.