If you have worked at a corporation, you may be familiar with the rules for putting money into a 401(k) plan. But are you familiar with the rules for taking your money out? Federal law limits the withdrawal options that a 401(k) plan can offer. But a 401(k) plan may offer fewer withdrawal options than the law allows, and may even provide that you can't take any money out at all until you leave Huntington Ingalls Industries. However, many 401(k) plans are more flexible.

Can you borrow money from your 401(k) plan account?

Many 401(k) plans allow borrowing from your own account, which may appeal to those ineligible for withdrawals or seeking to avoid taxes and penalties. Many 401(k) plans allow you to borrow money from your own account. A loan may be attractive to our Huntington Ingalls Industries clients who don't qualify for a withdrawal, don't want to incur the taxes and penalties that may apply to a withdrawal, or don't want to permanently deplete their retirement assets. (Also, you must take any available loans from all plans potentially maintained by Huntington Ingalls Industries before you're even eligible to withdraw your own pretax or Roth contributions from a 401(k) plan because of hardship.)

In general, you can borrow up to one-half of your vested account balance (including your contributions, Huntington Ingalls Industries's potential contributions, and earnings), but not more than $50,000.

You can borrow the funds for up to five years (longer if the loan is to purchase your principal residence). In most cases, you repay the loan through payroll deduction, with principal and interest flowing back into your account. But keep in mind that when you borrow, the unpaid principal of your loan is no longer in your 401(k) account working for you.

When can you withdraw your own 401(k) contributions?

After-tax contributions can be withdrawn anytime for any reason, while pretax and Roth contributions require plan-specific allowance and qualifying reasons. If you've made after-tax (non-Roth) contributions, your 401(k) plan can let you withdraw those dollars (and any investment earnings on them) for any reason, at any time. You can withdraw your pretax and Roth contributions (that is, your 'elective deferrals'), however, only for one of the following reasons, and again, only if your plan specifically allows the withdrawal:

• You attain age 59�
• You become disabled
• The distribution is a 'qualified reservist distribution'
• You incur a hardship (i.e., a 'hardship withdrawal')

Hardship withdrawals are allowed only if you have an immediate and heavy financial need, and only up to the amount necessary to meet that need. In most plans, you must require the money to:

• Purchase your principal residence, or repair your principal residence damaged by an unexpected event (e.g., a hurricane)
• Prevent eviction or foreclosure
• Pay medical bills for yourself, your spouse, children, dependents, or plan beneficiary
• Pay certain funeral expenses for your parents, spouse, children, dependents, or plan beneficiary
• Pay certain education expenses for yourself, your spouse, children, dependents, or plan beneficiary
• Pay income tax and/or penalties due on the hardship withdrawal itself

Investment earnings aren't available for a hardship withdrawal, except for certain pre-1989 grandfathered amounts.

But there are some disadvantages to hardship withdrawals that our clients from Huntington Ingalls Industries should keep in mind, in addition to the tax consequences described below. You can't take a hardship withdrawal at all until you've first withdrawn all other funds, and taken all nontaxable plan loans, available to you under all retirement plans potentially maintained by Huntington Ingalls Industries. And, in most 401(k) plans, the employer, such as Huntington Ingalls Industries, must suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose valuable potential Huntington Ingalls Industries-matching contributions. Hardship withdrawals can't be rolled over. So it's important for Huntington Ingalls Industries employees to think carefully before making a hardship withdrawal.

Can you withdraw employer contributions from your 401(k)?

Some plans prohibit employer contribution withdrawals before employment termination, while others allow withdrawal of vested company matching and profit-sharing contributions. Getting employer dollars out of a 401(k) plan can be even more challenging. While some plans won't let you withdraw employer contributions at all before you terminate employment, other plans are more flexible, and let you withdraw at least some vested employer contributions before then. 'Vested' means that you own the contributions and they can't be forfeited for any reason. In general, a 401(k) plan can allow you to withdraw vested company matching and profit-sharing contributions if:

• You become disabled
• You incur a hardship (your employer has some discretion in how hardship is defined for this purpose)
• You attain a specified age (for example, 59�)
• You participate in the plan for at least five years, or
• The employer contribution has been in the account for a specified period of time (generally at least two years)

How are 401(k) withdrawals taxed?

Pretax contributions, employer contributions, and investment earnings are subject to income tax upon withdrawal, while after-tax contributions remain nontaxable. Your own pretax contributions, company contributions, and investment earnings are subject to income tax when you withdraw them from the plan. If you've made any after-tax contributions, they'll be nontaxable when withdrawn. Each withdrawal you make is deemed to carry out a pro-rata portion of taxable and nontaxable dollars.

Your Roth contributions, and investment earnings on them, are taxed separately: if your distribution is 'qualified,' then your withdrawal will be entirely free from federal income taxes. If your withdrawal is 'nonqualified,' then each withdrawal will be deemed to carry out a pro-rata amount of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if you satisfy a five-year holding period, and your distribution is made either after you've reached age 59�, or after you've become disabled. The five-year period begins on the first day of the first calendar year you make your first Roth 401(k) contribution to the plan.

The taxable portion of your distribution may be subject to a 10% premature distribution tax, in addition to any income tax due, unless an exception applies. Exceptions to the penalty include distributions after age 59�, distributions on account of disability, qualified reservist distributions, and distributions to pay medical expenses.

Can you roll over non-Roth 401(k) withdrawals tax-free?

Eligible rollover distributions can be rolled tax-free to a traditional IRA or another plan accepting rollovers, except for hardship and required minimum distributions. If your in-service withdrawal qualifies as an 'eligible rollover distribution,' you can roll over all or part of the withdrawal tax-free to a traditional IRA or to another potential Huntington Ingalls Industries plan that accepts rollovers. In general, most in-service withdrawals qualify as eligible rollover distributions except for hardship withdrawals and required minimum distributions (which generally begin at age 73). If your withdrawal qualifies as an eligible rollover distribution, your plan administrator will give you a notice (a '402(f) notice') explaining the rollover rules, the withholding rules, and other related tax issues. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you don't directly roll the funds over to another plan or IRA.)

You can also roll over ('convert') an eligible rollover distribution of non-Roth funds to a Roth IRA. And some 401(k) plans even allow you to make an 'in-plan conversion'--that is, you can request an in-service withdrawal of non-Roth funds, and have those dollars transferred into a Roth account within the same 401(k) plan. In either case, you'll pay income tax on the amount you convert (less any nontaxable after-tax contributions you've made).

Where can you roll over Roth 401(k) funds?

Roth 401(k) withdrawals can only be rolled to a Roth IRA or another Roth plan, with the five-year holding period restarting for nonqualified distributions. If you withdraw funds from your Roth 401(k) account, those dollars can only be rolled over to a Roth IRA, or to another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Again, hardship withdrawals can't be rolled over.) But be sure to understand how a rollover will affect the taxation of future distributions from the IRA or plan. For example, if you roll over a nonqualified distribution from a Roth 401(k) account to a Roth IRA, the Roth IRA five-year holding period will apply when determining if any future distributions from the IRA are tax-free qualified distributions. That is, you won't get credit for the time those dollars resided in the 401(k) plan.

How can you learn about your plan's withdrawal rules?

Review the plan's summary plan description, which the employer provides within 90 days of joining the plan. We recommend that our clients from Huntington Ingalls Industries become familiar with the terms of Huntington Ingalls Industries's potential 401(k) plan to understand your particular withdrawal rights. A good place to start is the plan's summary plan description (SPD). Huntington Ingalls Industries will give you a copy of the SPD within 90 days after you join the plan.

At Huntington Ingalls Industries, the connection between 401(k) investing and your employer's retirement plan is more direct than it might seem. Understanding the benefits you've built up, and the choices ahead, puts you in a stronger position to make this work.

The company offers competitive retirement benefits including employer-sponsored savings plans designed to help employees build long-term financial security alongside Social Security benefits. Alongside those retirement benefits, your healthcare coverage plays a bigger role than most employees realize. What you're paying for medical, dental, and vision coverage now, and what those costs look like in retirement, directly affects how far your savings will stretch when it comes to 401(k) investing.

Coordinating Huntington Ingalls Industries's retirement benefits with your other accounts and income timing is where a personalized plan pays for itself. For 401(k) investing, the specifics of your situation should drive the decision, not general guidelines.