How to Withdraw From The Contractors Plan Without Penalty

To withdraw from The Contractors Plan without penalty, you need a qualifying event, a correctly completed Distribution Election Form, and a distribution path that either avoids the 10% early withdrawal tax or fits one of the IRS exceptions to it. The Contractors Plan is a retirement and fringe benefit platform for workers on federally funded construction projects covered by the Davis-Bacon Act, which requires contractors to pay prevailing wages and benefits.¹ Your employer’s contributions sit in a trust until you hit a distribution trigger. From there, how you take the money decides whether you keep it all or hand a share to the IRS.

Qualifying Events That Unlock Your Balance

The plan won’t release funds on request alone. A recognized qualifying event has to be on record, and a waiting period of 30 to 60 days must pass after your last reported hour of work before the administrator will move anything. That buffer gives the plan time to confirm no more contributions are coming in from your employer.

Separation from service — you leave or are laid off from the contributing employer. This is the trigger most construction workers use between projects.
Reaching age 59½ — the federal threshold for penalty-free retirement withdrawals, whether or not you’re still working.²
Total and permanent disability.
Death, in which case your designated beneficiary files for the remaining balance.

If you’re between projects but haven’t formally separated from your employer, check how your status has been reported. That mismatch is where most delays start.

How to Avoid the 10% Early Withdrawal Penalty

If you take a cash distribution before age 59½, the IRS adds a 10% penalty on top of the income tax you already owe on the money.² You report the penalty on Schedule 2 of your Form 1040.³ Federal law carves out several exceptions that matter for construction workers:⁴

Separation from service after age 55. If you leave your employer during or after the calendar year you turn 55, the 10% penalty does not apply to distributions from that employer’s plan.
Total and permanent disability.
Substantially equal periodic payments. You can set up a series of roughly equal annual payments based on your life expectancy. Once started, you must continue for at least five years or until you reach 59½, whichever is later.
Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.
Qualified domestic relations orders. A court order from a divorce directing the plan to pay a former spouse is penalty-free for the alternate payee.
IRS levy against the retirement account to collect unpaid taxes.

The age-55 rule trips people up. It only works for distributions taken directly from the plan of the employer you separated from. Roll the money into an IRA first and you lose it, because IRA early withdrawals before 59½ don’t qualify for the age-55 exception.

Direct Rollover: The No-Tax, No-Penalty Route

If you don’t need the cash in hand, a direct rollover is the cleanest way to move your balance without triggering tax or penalty. The administrator sends the funds straight from The Contractors Plan into an IRA or another qualified employer plan on your behalf. You never touch the money, nothing is withheld, and the full amount keeps growing tax-deferred.

A cash distribution works differently. The plan must withhold 20% of the taxable portion for federal income tax before you receive anything, and you cannot opt out of that withholding on a qualified-plan distribution.⁵⁶ The 20% is a prepayment toward your tax bill, not a flat tax. Your actual rate depends on your income bracket, and the full distribution gets added to your taxable income for the year. If your withholding doesn’t cover what you owe, you may need to make an estimated tax payment to avoid an underpayment penalty.³

You can split the distribution. Roll over part, take the rest in cash, and the 20% withholding applies only to the portion you receive directly.⁶

The 60-Day Rescue If You Already Took Cash

If you took a cash distribution and want to undo the tax hit, you have 60 days from the date you received the funds to deposit them into an IRA or another qualified plan.⁷ Complete the rollover inside that window and you owe no income tax on the amount rolled over.

Here’s the trap. The plan already withheld 20%, so you only received 80% of the gross distribution. To roll the full original amount and avoid any taxable event, you have to come up with that missing 20% out of pocket and deposit it with the 80% you received.⁷ You’ll get the withheld amount back as a refund when you file, but you have to front it first. Roll over only what you actually received and the withheld portion counts as a taxable distribution.

Miss the 60-day deadline and the full amount becomes taxable income that year, plus the 10% penalty if you’re under 59½. The IRS allows hardship waivers and self-certification in limited circumstances, but a direct rollover from the start avoids this problem entirely.⁷

Spousal Consent for Married Participants

If you’re married, your spouse’s written consent is required before the plan can pay out your balance in most situations, and the same rule applies if you want to name someone other than your spouse as beneficiary. The consent must be witnessed by either a plan representative or a notary public.⁸ A kitchen-table signature won’t satisfy the requirement.

Plans can skip spousal consent when the total account value is $5,000 or less. Above that, a missing or improperly witnessed spousal signature is the single most common reason distribution forms get sent back.⁹

Submitting the Distribution Election Form

Before filling out anything, gather your Social Security number, the account number assigned by the plan, and the name of your last contributing employer. The employer name matters because the administrator uses it to verify your separation date and confirm the waiting period has passed.

Download the Distribution Election Form through The Contractors Plan’s online participant portal or request it from your employer’s human resources office. The form asks you to select your qualifying event, provide a current mailing address, and choose how you want the money paid out. The qualifying event you select drives the tax treatment of your payout, so choose carefully. Separation from service and age 59½ are not interchangeable even if both technically apply.

If you’re rolling funds into another retirement account, you’ll need the receiving institution’s name and account details. For married participants, the form includes a spousal consent section requiring a notarized signature.

Mail the signed, completed form to The Contractors Plan’s home office at 11910 Anderson Mill Road, Austin, TX 78726.¹⁰ Use certified mail or a tracked carrier so you have proof of delivery. Some accounts can upload documents through the online portal, which is faster when available. Once the administrator approves the request, ACH direct deposits typically arrive within one to three business days; paper checks take longer. If you haven’t heard back after two weeks, call the participant line at 1-855-433-2981.

Hardship Withdrawals and Plan Loans While Still Working

If you’re still employed by a contributing contractor and facing a financial emergency, you may not have to wait for a qualifying event to tap part of your balance.

A hardship withdrawal covers an immediate and heavy financial need. The IRS recognizes several safe-harbor reasons:¹¹

Medical expenses for you, your spouse, dependents, or beneficiary
Costs to purchase your primary home (not mortgage payments)
Tuition and room and board for the next 12 months of post-secondary education
Payments to prevent eviction or foreclosure on your primary residence
Funeral expenses
Repair costs for damage to your primary residence

Hardship withdrawals are taxable income, may trigger the 10% early withdrawal penalty if you’re under 59½, and cannot be rolled over. Not every account offers them, so confirm the provision applies to yours before you plan around it.

A plan loan is often the better option when available. You can borrow up to the lesser of $50,000 or 50% of your vested account balance, repaid to yourself with interest through payroll deductions, usually within five years unless the loan is used to buy a primary residence.¹² Because you’re borrowing from yourself, a plan loan triggers no income tax and no early withdrawal penalty, as long as you repay on schedule. Default and the outstanding balance is treated as a taxable distribution.

Required Minimum Distributions After Age 73

The rules also push the other direction. Starting in the year you turn 73, you must begin taking required minimum distributions each year.¹³ If you’re still working for a contributing employer and own less than 5% of the business, you can delay RMDs until the year you actually retire.

Missing an RMD is expensive. The IRS imposes a 25% excise tax on the amount you should have withdrawn but didn’t. Catch the mistake and withdraw the shortfall within two years and the penalty drops to 10%.¹⁴ The plan calculates the minimum each year, but the responsibility for actually taking it is yours.

Form 1099-R at Tax Time

Any distribution you receive during the year gets reported to you and the IRS on Form 1099-R, which the plan must send by January 31 of the following year.¹⁵ The form shows the gross distribution, the taxable portion, the federal tax withheld, and a distribution code that tells the IRS why the money was paid out.

A direct rollover should show as nontaxable on the form. If you took cash and completed a 60-day rollover, you still need to report the rollover on your return so you aren’t taxed on money you put back. Keep the 1099-R with your tax records. The IRS gets a copy, and any mismatch between what you report and what the plan reports will produce a notice.

1
U.S. Department of Labor. Davis-Bacon and Related Acts Frequently Asked Questions – Fringe Benefits
2
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
3
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
4
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
6
eCFR. 26 CFR 31.3405(c)-1 – Withholding on Eligible Rollover Distributions; Questions and Answers
7
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
8
Office of the Law Revision Counsel. 29 U.S. Code 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity
9
Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Obtain Spousal Consent
10
The Contractors Plan. Contact Us
11
Internal Revenue Service. Retirement Topics – Hardship Distributions
12
Internal Revenue Service. Retirement Topics – Plan Loans
13
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
14
Office of the Law Revision Counsel. 26 U.S. Code 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
15
Internal Revenue Service. Publication 1099 – General Instructions for Certain Information Returns