Navigating 401(k) Withdrawals: A Guide for Architects in Financial Emergencies

As architects and design professionals, you often have to plan meticulously, whether it’s designing a building or managing your finances. Yet, even the best plans can’t always account for unexpected financial pressures. Perhaps you’re facing unforeseen medical expenses, property damage, or an exciting opportunity like starting your own firm. Whatever the situation may be, you may have considered tapping into your 401(k) savings early to cover such expenses. And you’ve likely heard that withdrawing funds from retirement savings accounts early is discouraged because of the taxes and penalties involved.

To that end, here are ways to reduce penalties if you are in position where you have no other choices and other options for funding as an alternative.

• Hardship Withdrawals:

If you’re facing a financial crisis, your 401(k) plan might allow for a hardship withdrawal. This option covers situations like medical expenses, purchasing a primary residence, preventing eviction, or repairing damages from a disaster. While you can avoid the 10% early withdrawal penalty, remember that these funds will still be subject to income taxes.

• 401(k) Loans

A 401(k) loan is a viable option if you need funds now and can repay them later. You can typically borrow up to $50,000, repaying it with interest over five years. This option avoids penalties and taxes, and the interest rates are often lower than personal loans. However, be mindful that failing to repay could turn the loan into a taxable event.

• Substantially Equal Periodic Payments (SEPP)

This less common route involves taking equal payments based on your life expectancy. While it bypasses the 10% penalty, these payments are taxable and must continue for five years or until you turn 59½. This option might appeal to those considering early retirement, but it lacks flexibility.

• Special Circumstances

Certain situations, like disability, terminal illness, or expenses related to childbirth or adoption, may allow you to withdraw without penalties. Additionally, during divorce settlements, accessing your 401(k) might be necessary, though it could be subject to taxes. Be sure to check with your plan provider to see what options it offers.

Exploring Alternatives

Withdrawing from your 401(k) can impact your retirement savings significantly and throw your goals off track. Alternatives like borrowing against life insurance can provide necessary funds without derailing your financial future. For example, if you have a cash value life insurance policy, you can either withdraw contributions or borrow against the cash value to cover short-term expenses. Just keep in mind that interest rates on these loans can vary. However, these options come with their own risks, such as the potential loss of your reduced insurance benefits.

Final Thoughts

Before deciding, weigh the long-term consequences against your immediate needs. Consider consulting a financial professional to navigate these options wisely, ensuring you secure not just your present, but also your future financial stability.

The AIA Trust is here to help

The AIA Trust offers retirement savings plans and distribution options through Equitable Financial Life Insurance Company (Equitable Financial) to assist you in achieving your retirement goals. Plans can be established for one-person firms (or components) — or for many employees — utilizing a variety of retirement savings and distribution vehicles. Equitable Financial can assist you toward achieving your goals based on over 50 years of experience working with association members and over 25 years with AIA architects. *

Equitable Financial can help you review your options and offer you choices that can help alleviate the burden of establishing and managing a retirement savings plan. It’s one of the ways that the AIA Trust makes it easier for you to focus on doing what you do best — architecture.

For additional information on these AIA-endorsed member benefits, or to schedule a meeting with a financial professional, please call Equitable Financial at (800) 523-1125 or visit at equitable.com/mrp.

This article is provided as a courtesy by Stephen B. Dunbar III, JD, CLU, Executive Vice President of the Georgia Alabama Gulf Coast Branch of Equitable Advisors, LLC, does not offer or constitute, and should not be relied upon, as financial, investment, tax or legal advice.  Your unique needs, goals and circumstances require the individualized attention of your own tax, legal, financial professionals whose advice and services will prevail over any information provided in this article.  Equitable Advisors, LLC and its affiliates are not affiliated with the AIA.  Stephen B. Dunbar III offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), offers investment advisory products and services through Equitable Advisors, LLC, an SEC-registered investment advisor, and offers annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified.  GE-6868263.1 (8/24)(Exp. 8/26)