Solo 401 k Roth Account Access in Times of Emergency

Retirement savings are intended for retirement purposes only and you wouldn’t want to touch it before retirement unless you are under an emergency. If you hold a Solo 401 k Roth account, having access to your savings before retirement is easy, but you must not abuse it because it’s your own retirement you’re putting at risk.

401 k roth

401 k roth

When you are in need of cash and you have no other means to get the amount you need, then getting funds from your Solo 401 k Roth must be your last resort.

There are several ways you can get funds from your solo roth 401k, starting from the simplest and less risky one:

Solo 401k loan
Take advantage of the Solo 401k loan option. This is a feature an account holder could benefit from. The amount you can borrow is 50% of your account balance but not more than $50,000. So if you have $120,000 total in your account, you can borrow up to $50,000. This method is less risky because the amount you took has to be returned through specific repayment terms along with interest. Your funds will still grow as you make repayments.

Early Withdrawal
As much as possible, early withdrawals or any other form of withdrawals must be avoided. It’s not healthy for your retirement account to lose funds. Once you make withdrawals, the amount you took will permanently leave your account and will lose all its growth potential. If the plan is a Roth 401 k, no need to pay taxes on the amount withdrawn that is equal to your total contribution, but if the amount exceeds and you are withdrawing from the gains, penalty and income tax will certainly apply.

Hardship Withdrawal
This is for a real and severe emergency. This is almost similar to an early withdrawal but penalty and taxes are possible to be waived if the individual’s circumstance can be proven under several categories of hardship—permanent disability, medical expenses that are worth more than your gross income, lost your job permanently, and court orders relating to payment to spouse or children. Also, under hardship withdrawals, you wouldn’t be allowed to make contributions to your Solo 401 k Roth account within 6 months even if your situation improves by then.

As a retirement solution firm, we do not suggest our clients withdraw money from their retirement accounts. Money invested for longer durations enjoys compound growth. In the words of Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”