How Do In-Service Withdrawals From the Caterpillar 401(k) Plan Work?

Putting money into a 401(k) is the easy part: payroll deduction, a matching formula, done. Taking money back out while you are still on Caterpillar's payroll is a separate question, and the answer lives in your plan's own document. An in-service withdrawal is any withdrawal you take from your Caterpillar 401(k) while you are still employed there, before you leave or retire. Whether you qualify, and how much you can take, depends on your plan's written terms, your age, and the reason for the withdrawal. Money you take out is generally treated as taxable income, and it can also trigger an additional 10% early-withdrawal tax if you have not reached age 59 1/2 and no exception applies. Pulling money out early can shrink the balance working toward your retirement, so compare a withdrawal against your plan's other options, including a loan, before you decide.

The rules for putting money in are shifting for 2026 even though this piece is about taking money out. The IRS raised the 401(k) employee contribution limit to $24,500 for 2026, up from $23,500, and employees age 50 and older can add a catch-up contribution of $8,000, for a combined $32,500. Employees who turn 60, 61, 62 or 63 during 2026 get a higher catch-up limit of $11,250 instead of the regular $8,000. A separate SECURE 2.0 rule starts in 2026 as well: if your wages from Caterpillar topped $150,000 in the prior year, any catch-up contribution you make has to go in as a Roth, after-tax, contribution instead of pretax. Because the law allows those catch-ups only as Roth contributions, a plan with no Roth option generally cannot accept them from you. These 2026 figures are worth knowing in a withdrawal-focused article because they set how large a balance you are deciding about, and because catch-up money for some higher earners now comes with its own Roth withdrawal rules.

For the 2026 contribution limits, RMD ages and loan rules in one place, see our companion piece answering common Caterpillar 401(k) questions: https://www.theretirementgroup.com/featured-article/5448095/caterpillar-employees-have-your-401k-questions-answered.

Can You Borrow Money From Your Caterpillar 401(k) Plan Account?

A plan loan works differently than a withdrawal, and Caterpillar's 401(k) may offer one. A loan can look attractive if you do not qualify for a withdrawal, want to skip the taxes and possible penalty a withdrawal can carry, or do not want to permanently shrink your retirement account. By law, a loan cannot exceed the lesser of $50,000 or half of your vested account balance, though the tax code lets a plan allow up to $10,000 when half your balance is less than that. The loan generally has to be repaid within five years on a level schedule, usually through payroll deduction, with a longer repayment period allowed if the loan is used to buy your main home. While the loan is outstanding, the amount you borrowed is no longer invested inside your account, so it earns nothing for you during that stretch.

When Can You Withdraw Your Own 401(k) Contributions?

If your plan accepts after-tax, non-Roth contributions in addition to your regular deferrals, it can let you withdraw those dollars, and any earnings on them, for any reason and at any time. Your pretax and Roth elective deferrals are more restricted. A plan can allow withdrawal of those only for events the law permits, such as reaching age 59 1/2, becoming disabled, separating from Caterpillar, a "qualified reservist distribution," a hardship, or one of the newer birth or adoption, domestic abuse victim, or disaster recovery distributions described below, and only if the plan document specifically names that reason. A hardship withdrawal is allowed only for an immediate and heavy financial need, and only up to the amount necessary to meet it, including the taxes the withdrawal itself will trigger. IRS regulations treat seven kinds of need as automatically meeting that standard. Three are family costs: certain medical expenses and tuition for the next 12 months of school for you, your spouse, children, dependents or beneficiary, plus certain funeral costs for a parent, spouse, child, dependent or beneficiary. Three involve your main home: buying it (not the mortgage payment), stopping an eviction or foreclosure, and certain repairs to storm or casualty damage. The seventh covers certain expenses and lost income from a FEMA-declared disaster where you live or work. Since 2019, the tax code lets a 401(k) plan pay hardship money from your elective deferrals, employer contributions, and the earnings on both, though a plan may open fewer sources or offer no hardship withdrawal at all. Two rules that used to apply here have changed: since 2019, federal law no longer requires a plan to make you take every available 401(k) loan before a hardship withdrawal, and for hardship withdrawals made on or after January 1, 2020, a plan may not stop your contributions for six months afterward. A plan can still require you to take an available loan first, so check Caterpillar's current summary plan description for both the hardship and loan rules. A hardship withdrawal cannot be repaid to the plan, and it cannot be rolled over to an IRA or another plan.

Can You Withdraw Employer Contributions From Caterpillar's 401(k)?

Not every plan allows this. Some bar any withdrawal of employer money before you leave Caterpillar, while others let you take out vested matching or profit-sharing contributions while you are still working there. "Vested" means the contributions are yours and cannot be taken back from you. Where a 401(k) profit-sharing plan does allow it, one common structure lets you withdraw employer contributions that are not matching or legally required nonelective amounts on a stated interval, commonly every two years, or on any other event the plan names. Caterpillar's own plan document sets the exact trigger, so check it, or ask the plan administrator, before assuming a particular age or years-of-service rule applies to your account.

Are 401(k) Withdrawals From Caterpillar's Plan Subject to Income Tax?

Your own pretax contributions, any employer contributions, and the earnings on both count as ordinary income when you withdraw them. After-tax contributions come back out without being taxed again, but the IRS requires each withdrawal to carry out a proportional mix of taxable and nontaxable dollars; you cannot choose to withdraw the nontaxable portion first. Roth contributions and their earnings follow a separate rule. A "qualified" distribution from a Roth 401(k) is free of federal income tax: it has to satisfy a five-tax-year holding period, measured from the first day of the first year you made a Roth 401(k) contribution to the plan, and be taken on or after you turn 59 1/2, or on account of death or disability. A withdrawal that misses either test is "nonqualified," and only the earnings portion, not the contribution portion, is taxed, split between the two on a pro-rata basis.

In addition to income tax, the taxable part of an early withdrawal can trigger an additional 10% tax unless one of the IRS's exceptions applies. For a 401(k) specifically, those exceptions include death, total and permanent disability, a qualified reservist distribution, an IRS levy on the plan, a qualified domestic relations order payment to an alternate payee, substantially equal periodic payments, separation from service in or after the year you turn 55 (age 50 for certain public safety employees), and unreimbursed medical expenses above 7.5% of adjusted gross income. The SECURE Act of 2019 and SECURE 2.0 added several newer ones: up to $5,000 per child for a qualified birth or adoption; up to the lesser of $10,500 for 2026 or half your account for a domestic abuse victim distribution; one emergency personal expense distribution a year, up to the lesser of $1,000 or your vested balance above $1,000; up to $22,000 for a qualified individual affected by a federally declared disaster; and a distribution to an employee a physician has certified as terminally ill. The newest exception applies to distributions made after December 29, 2025: a qualified long-term care distribution used for certified long-term care insurance premiums for you or your spouse, capped at the smallest of your actual premium, 10% of your vested benefit, or $2,600 for 2026, if Caterpillar's plan permits that kind of distribution. Several of these carry their own dollar caps and conditions, so confirm with the plan administrator and a tax professional that an exception actually fits your situation before you rely on it.

Can You Roll Over Caterpillar 401(k) In-Service Withdrawals Without Paying Tax Now? Where Can You Roll Over Roth 401(k) Withdrawals?

If your in-service withdrawal counts as an "eligible rollover distribution," you can roll over all or part of it to a traditional IRA or to another plan that accepts rollovers without owing income tax on it now. Most in-service withdrawals qualify, but some do not, including a hardship withdrawal and a required minimum distribution. The age at which RMDs start depends on your birth year under SECURE 2.0: it is 73 if you were born in 1951 through 1959, and 75 if you were born in 1960 or later. Before paying an eligible rollover distribution, Caterpillar's plan administrator has to give you a "402(f) notice" explaining your rollover and withholding choices, and the plan must withhold 20% of the taxable portion for federal income tax unless you send it directly to another plan or IRA. You can also convert an eligible rollover distribution of non-Roth money into a Roth IRA, paying income tax on the amount converted, less any nontaxable after-tax contributions in it. Some 401(k) plans also allow an "in-plan Roth conversion," which moves non-Roth money into a Roth account inside the same plan without the money leaving the plan; this is only possible if Caterpillar's plan has a Roth feature to begin with. An in-plan Roth rollover is taxed in the year you make it and is not subject to the 10% early-withdrawal tax at that time, but a special rule can bring that tax back if the converted amount is distributed within five tax years of the rollover. A Roth 401(k) withdrawal can roll only into a Roth IRA or into another Roth 401(k), 403(b) or 457(b) plan that accepts rollovers, and a hardship withdrawal still cannot be rolled over regardless of which account type it comes from. Moving a nonqualified Roth 401(k) distribution into a new Roth IRA does not carry over the five-tax-year clock from the 401(k); the Roth IRA's own five-tax-year period applies instead, measured from the year of your earliest Roth IRA contribution if you already had one open.

What in-service withdrawals and loans does Caterpillar's 401(k) Savings Plan allow?

Those general IRS rules about hardship, loans and taxes play out against Caterpillar's own plan design. The 401(k) Savings Plan (PN 035) auto-enrolls new participants at 6% of eligible pay, stepping up 1 percentage point a year to 15%, into a target date fund near the participant's 65th birthday unless they choose otherwise, and accepts both pre-tax and Roth contributions. Most participants are matched 100% of contributions up to 6% of eligible pay, though certain groups instead receive a 50% match up to the same 6%, and that match vests immediately. A loan can run up to the lesser of $50,000 or 50% of a vested balance, with a $1,000 minimum, up to two loans outstanding at once, a five-year repayment term (longer for a home purchase), and an interest rate of the prime rate on the first business day of the quarter plus 1%, set when the loan is made. Effective January 1, 2021, the plan also allows a hardship withdrawal for expenses or lost income tied to a FEMA-declared disaster. Caterpillar's own summary plan description names any other in-service withdrawal reasons it allows beyond hardship.