Can an Employer Deny a 401(k) Withdrawal?

A 401(k) is an employer-sponsored retirement savings account that offers tax advantages. While many people assume their contributions are accessible at any time, an employer can deny a withdrawal request under certain circumstances. The ability to access funds from your 401(k) is not determined by an employer’s discretion but by the rules of the plan and your employment status. Federal law and the plan’s specific provisions dictate when and how you can take money out.

The 401(k) Plan Document’s Authority

Every 401(k) plan is governed by a legal document known as the plan document, which serves as the official rulebook. An employer, acting as the plan administrator, is legally bound to follow the terms of this document, and all withdrawal decisions must be consistent with its provisions.

The plan document specifies exactly what types of withdrawals are permitted, including whether the plan allows for loans, hardship withdrawals, or in-service distributions for employees who are still working. It also outlines the conditions that must be met for each type of withdrawal. If a requested withdrawal does not meet the criteria laid out in the plan document, the employer must deny it to remain in compliance.

Because the plan document can be technical, the Employee Retirement Income Security Act (ERISA) requires employers to provide a more accessible summary called the Summary Plan Description (SPD). The SPD explains the plan’s rules in plainer language and is the go-to guide for understanding your withdrawal options. You can obtain a copy from your human resources department, the plan administrator, or an online portal for your 401(k) account.

Withdrawal Rules for Active Employees

While you are still employed, your ability to access 401(k) funds is restricted to preserve the account for retirement. The options available depend entirely on what the plan document permits, as employers are not required to offer them. One option is an in-service distribution, which allows withdrawals once an employee reaches age 59½. If your plan does not include this provision, your employer must deny a request for a non-hardship withdrawal before you leave the company.

Another option is a hardship withdrawal, which is for an “immediate and heavy financial need.” The IRS provides “safe harbor” reasons that are considered valid needs, including:

• Medical care expenses
• Costs to purchase a principal residence
• Tuition and related educational fees
• Payments to prevent eviction or foreclosure
• Funeral expenses
• Expenses for certain home repairs

Even if your situation aligns with an IRS-approved reason, the plan may have more restrictive rules or not permit hardship withdrawals at all.

Some plans also offer loans, which must be repaid with interest. If a loan feature is available, it has strict rules. These include limits on the loan amount, which is the lesser of $50,000 or 50% of your vested account balance, though an exception allows borrowing up to $10,000. An employer can deny a loan request if you do not meet the plan’s criteria, such as having other outstanding loans.

Withdrawal Rights After Leaving Employment

After your employment ends through resignation, retirement, or layoff, you have an unrestricted right to access your vested account balance. The most common options are taking a lump-sum distribution or initiating a rollover. A lump-sum distribution is a taxable event and may be subject to a 10% early withdrawal penalty if you are under age 59½. A rollover moves your funds to another retirement account, like an IRA or a new employer’s 401(k), which avoids immediate taxes and penalties.

An employer cannot deny a request for a distribution or rollover of vested funds after you have left the company. They can, however, enforce procedural rules, such as requiring specific forms and observing waiting periods. Be aware of “force-out” provisions. If your vested account balance is below $7,000, your former employer can require you to move your money out of the plan, often by automatically rolling it into an IRA.

Required Information and Documentation for a Withdrawal

To request a withdrawal, you must provide specific information and documentation using official forms from the plan administrator or an online portal. All requests require basic personal information, including your name, Social Security number, and address.

For a hardship withdrawal, the documentation requirements are more extensive. You must provide proof to substantiate your claim, such as copies of medical bills, a home purchase agreement, or an eviction notice. Failure to provide adequate proof is a valid reason for denial.

Certain withdrawals may also require spousal consent, particularly in community property states or for plans with annuity payment options. If required, your spouse must sign a consent form, often before a notary, to waive their right to a survivor annuity. A missing spousal consent signature will result in the denial of the request.

The Withdrawal Request and Formal Denial Process

You can submit your completed withdrawal request by mail or through a secure online portal, depending on the plan administrator. Once submitted, the administrator will review your request for compliance with plan rules and federal regulations, which can take several business days to a few weeks. The decision will be communicated in writing.

If your request is denied, the plan administrator must provide a formal written denial. This notice must state the specific reason for the denial and reference the supporting section of the plan document.

Under the Employee Retirement Income Security Act (ERISA), you have the right to appeal this decision. The Summary Plan Description (SPD) contains instructions on how to file a formal appeal, including the required timelines.