Like other 401k plans, the Vanguard plan allows employees to have a percentage of their pretax pay dedicated to the plan, with employers matching up to a set amount that varies from one employer to another. Contributions are then invested so that the money grows over time. However, it may become necessary to withdraw money from your Vanguard 401k. Before you do so, it's important that you understand the terms of withdrawal.
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What Withdrawal Means
There's more than one way to access money in your Vanguard retirement plan. People often choose to take a loan against the balance of their plans, for instance. However, a true withdrawal is defined by Vanguard as a "permanent removal of all or a portion of the assets from your plan account."
Applying for Withdrawal
Vanguard requires plan holders to submit an online application before it authorizes a withdrawal. The application asks you why you're withdrawing from your plan, giving you options such as "hardship," "rollover" and "59 1/2," which refers to the age at which you can access the plan without special penalties.
The application also explains various important terms, which can differ from one employer's 401k plan to another. Such terms might include the approval of the plan sponsor — your employer — before the money is released and whether supporting documentation is required as to the purpose of the withdrawal.
Depending on the reason for your withdrawal, your plan may require that before withdrawing from the plan, you take all available loans against it first. Depending on the reason for the hardship, you may be allowed to withdraw from the plan as often as once a day or as little as once a year. If you take a hardship withdrawal, you also can't contribute to the plan again for six months.
Certain terms of withdrawal apply not just to Vanguard 401k plans but to all such plans. For one, if you're married, you need to submit written consent from your spouse for the withdrawal. Additionally, program participants have 60 days from the time a withdrawal is made to roll the money into another type of retirement plan before the money becomes taxable. Monies withdrawn from a plan and not rolled over into a different plan are subject to a 20 percent tax withholding. Additionally, plan participants under the age of 59 1/2 are also subject to an additional 10 percent tax penalty, although there are exceptions to this specified by the Internal Revenue Service, such as for withdrawals made to a plan participant to a beneficiary after the participant's death; because the money is needed as the result of a major disaster for which the IRS has granted relief; or because the individual making the withdrawal has a qualifying disability.