What is one restriction regarding funds in a 401(k) Plan?

A primary restriction of a 401(k) plan is that funds cannot be withdrawn before retirement without incurring a penalty. This rule is designed to encourage individuals to save for retirement and ensure that the money is used for its intended purpose. Typically, if an individual withdraws funds from a 401(k) before reaching the age of 59½, they may face a 10% early withdrawal penalty in addition to ordinary income taxes on the amount withdrawn.

This regulation helps to safeguard retirement savings and promotes financial discipline, making it essential for planning for long-term financial goals. Understanding this aspect of 401(k) plans is critical for individuals looking to navigate their retirement options effectively and maximize the benefits of their savings.