The rule is that you don’t draw against your 401(k) account until retirement. However, as a last resort and depending on your balance, the funds in your 401(k) are available to you in case of an emergency.

Your 401(k) plan can present itself as a great benefit for more than just retirement, and this should put you at ease about putting away your money in your employer’s plan.

Now, let's assume you have an unexpected crisis and you need your money -- what should you know?

• You need to find out if your 401(k) program offers a loan feature,
• Some states require written spousal consent;
• You may borrow up to 50% of your vested account balance,
• You may attain the loan over the phone or by filling out a simple form
• You may borrow for any reason, medical bills, home loan, bills, etc.
• The maximum loan amount is for $50,000,
• Loan checks are usually processed between 3-7 business days
• The standard repayment period is for 60 months or 5 years
• The interest rate is favorable or better than most personal loans
• The interest rate may vary but may be prime rate plus 1%
• You pay the interest and loan back to yourself through payroll
• You can always repay your loan at any time before your ending periods

Many plans will permit you to have more than one plan loan, but I do not suggest it. Moreover, you have consequences for defaulting on your loan. When you default on your loan the government sees it as a distribution in the tax year you withdrew the monies.

Therefore, you will owe taxes at a bracket based on your current salary plus the defaulted amount for that year. It’s usually 20% withholding plus 10% penalty fee for removing from your 401(k) before the age of 59 ½ . If you leave employment or are laid off and you have to repay your loans immediately, paying the loan back with a credit card is better than paying 30-50% back in taxes and penalties.

Other consequences include selling shares to pull cash at a high cost and/or not earning potential gains on your monies if you draw against your account. You risk diminishing your account and potential retirement savings if you are not conservative in taking loans from your retirement plan. With this said, be sure to take money for your plan loan from your lowest returning investment option. If you do not have this option, then “rebalance” your account.

Your plan representative can guide you through the mentioned processes, provide you with forms, your sponsor's 800# and website address, and other specific employer guidelines. I also note that employers may not waiver from their guidelines as they are federally regulated and usually privately audited on an annual basis.