I have a 401K at work, which had a $20,000 loan against it. I also had a separate self-directed IRA. I wanted to take the money out of my 401K but was told I had to pay off the loan. So, I took early distribution on my IRA and used the money to pay off the 401K loan. Now of course, I have taxes and penalties due on the IRA distribuition money (and that's OK, I expected that). But, I also expected to have access to my 401K money... that's why I paid off the loan. I even spoke with Fidelity about paying off the loan and the 10% early distribution on the 401K (it tells about it on their site too).

So, today I call to start the ball rolling to take my 401K money out now that the loan is paid off and they tell me I can't touch it. I'm not 59 -1/2 AND I haven't moved employers. I said, "I talked to you guys and no where one your site does it say this...plus, why do you explictly talk about the 10% penalty informaiton if no one can take the money out early?"

They said, "Oh, we'll have to change the wording on the site" and "It's not just our policy, it's a national policy..you can't take 401K money out early unless you are over 50 1/2 or left the job."

Now, frankly, I'm screwed. Instead of have the cash I needed, paying off some bills etc. I'm strapped to come up with all the extra tax money I'm required to pay for the IRA distribution.

Is what Fidelity told me today correct?

Very few plans allow for in-service withdrawals by active employees from their 401(k), unless the purpose for the withdrawal falls into one of the following "hardship withdrawal" categories:

1. Un-reimbursed medical expenses for you, your spouse, or dependents.
2. Purchase of an employee's principal residence.
3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
5. Funeral expenses
6. Repair of a primary residence.

If you need the money for some other purpose, your company will probably not allow it. I think yor only option for hgetting money from your 401(k) would be to take out another loan.