Asking for my sister... She has a 401k in the amount of 17,000. She is now facing foreclosure on her home but is unable to access her funds even with penalties Isn't there something about hardship? She said she asked and they told her unless she leaves the company she cannot withdraw the money. This seems strange to me is it true?

Is there a loan option that she could borrow from the 401K while still employeed? As far as I know, different 401K's are set up with different provisions so the company is probably telling it like it is...

I had one like that myself in the past, and had to leave employment before I could withdraw any funds.

The specifics of whether withdrawals are allowed is up to each 401(k) plan. It's quite possible that her plan does not allow any in-service withdrawals, even though the IRS says it would be OK for the plan to allow it under one of the hardship withdrawal rules. I agree with 1guy - she should see whether her plan offers a loan provision.

Just piling on what's been said, which is all true.

First, make sure she's asking them about a LOAN... not a withdrawl. Some plans allow you to pull money from the account without the tax and penalties you get with a withdrawl... so she should be asking about a loan.

She needs to talk to the plan administrator. Period. Nobody can guess what provisions are allowed for loans/withdrawls... some plans, like the one my wife has, is quite lenient. Others are not... in my wife's case, she can take a loan (not a withdrawl) without hardship, and not get hit with withdrawl penalties, but she has to pay interest and she has to stay with the company, and there's a structured repayment schedule.

If the plan doesn't allow for this loan, then they're saying shed need to leave the co, and instead of rolling over to a new plan, shed cash out, getting early withdrawl penalties and tax consequences.

I feel for her situation... plans are often set up limiting withdrawals or loans because its not meant to be a savings plan... its meant to be a retirement fund. But I do understand her dire need.

Lesson learned... know your plan provisions for loans and withdrawals when you start it.