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How and when can I withdraw from my Betterment 401(k) account?

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How and When Can I Withdraw from My 401(k) Account?

401(k) withdrawals are subject to specific rules and employer approval, depending on your employment status, age, and plan options. Here’s what you need to know:

When Can I Withdraw 401(k) Funds?

  • General Rule: 401(k) Withdrawals are generally not permitted until you:
    • Turn 59½.
    • Leave your employer.
    • Become disabled or pass away.
  • Early 401(k) Withdrawals: Accessing funds before age 59½ typically incurs a 10% early withdrawal penalty, along with regular income tax. Exceptions may apply for hardship distributions or other qualifying reasons.
  • Check Your Plan: Your plan’s Summary Plan Description (SPD), available in your 401(k) Documents section, outlines the specific withdrawal options available under your 401(k).

Withdrawal Options Upon Termination

If you are no longer employed with the sponsoring employer, you can:

  1. Cash Out: Withdraw the full balance, which may have tax implications and potential penalties.
  2. Rollover: Transfer funds to:
    • A Betterment IRA.
    • A new 401(k) provider.
  3. Leave it in the Plan: Keep your funds in the current 401(k), though inactive accounts may be subject to force-out rules for balances below a certain threshold.

Note: All 401(k) distributions, including rollovers, require employer approval. 

Special Withdrawal Options

  • 401(k) Hardship Distributions: These withdrawals may be allowed under certain financial hardships, such as medical expenses or home foreclosure prevention. Eligibility and requirements are defined by your plan.
  • 401(k) Loans: Some plans allow you to borrow from your 401(k). Loan terms, repayment schedules, and eligibility are determined by your employer’s plan.

How to Request a 401(k) Distribution

  1. Log in to your Betterment account using a web browser. This action cannot be performed in the mobile app
  2. Navigate to "Transfer or Rollover" and select "Withdraw"
  3. Follow the prompts to choose your 401(k) account and specify the type of withdrawal or rollover you want
  4. Review and confirm the tax implications and plan-specific requirements.

Important Considerations

  • Tax Implications: 401(k) withdrawals may be subject to income tax and penalties. Consult a tax professional for personalized advice.
  • Plan-Specific Rules: Always review your plan’s SPD or contact your plan administrator for details on withdrawal eligibility.
  • Employer Approval: All 401(k) distributions, including rollovers and hardship withdrawals, require employer approval.