Hardship Withdrawal

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Hardship Withdrawal

A withdrawal from a retirement account such as a 401(k) or an IRA made before the age of 59 1/2 because of financial need. In order to make a hardship withdrawal, one must demonstrate the financial need, such as the need to pay medical bills or tuition for college. Even so, a hardship withdrawal is usually subject to a penalty tax.

Hardship withdrawal.

A hardship withdrawal, also known as a hardship distribution, occurs when you take money out of your 401(k) or other qualified retirement savings plan to cover pressing financial needs.

You must qualify to withdraw by meeting the conditions your plan imposes in keeping with Internal Revenue Service (IRS) guidelines. For example, you may have to demonstrate how urgent the situation is and prove you have no other resources.

Some allowances are purchasing your primary home, covering out-of-pocket medical expenses for yourself or a dependent, and paying college tuition for yourself or a dependent.

However, if you're younger than 59 1/2, you must pay a 10% penalty plus income tax on the amount you withdraw. You also may not be permitted to contribute to the plan again for six months.

Hardship Withdrawal

A withdrawal from a section 401(k), section 403(b), or section 457 plan that is permitted when the plan participant has an immediate and heavy financial need and the withdrawal is necessary to meet that need.
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He goes on to advise that determining from which account to draw first is part art and part science and cautions that although hardship distribution provisions from a 401(k) are rarely discussed, in the last few years there has been an increase in requests for hardship distributions.
The withdrawals do not have to be repaid, but the employee must pay taxes and any applicable penalties on the hardship distribution.
For example, loan and hardship distribution features may rarely be used by a high-income group and, when used, may require very little administrative time and effort.
For example, the automatic enrollment provisions for 401(k)and 403(b) plans are already in effect, so you may wish to provide hardship distribution to beneficiaries who are neither spouse nor the the dependent of the plan participant.
Currently, a plan may make a financial hardship distribution only where it is necessary to meet an immediate and heavy financial need of the employee.
In addition, you won't be allowed to make elective contributions into your 401(k) plan for the 12-month period following the hardship distribution.
8] "Personally owned" assets such as marketable securities or certificates of deposit are available assets which would have to be used before a distribution from a QDOT could qualify as a hardship distribution.
Slightly more than 2% of participants took a hardship distribution in the past year compared with 2.
The hardship distribution rules mandated that (1) these distributions be made on account of an "immediate and heavy financial need" of the participant or the participant's spouse or dependent and (2) the distribution be necessary to satisfy their financial need.
28, 2005, and before Aug 29, 2005, took a distribution such as a hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA to purchase or construct a home in the Hurricane Katrina disaster area, but it was not purchased or constructed as a result of Hurricane Katrina, could recontribute the funds to the plan without any tax consequence.
Distributions on cancellation of deferrals following a hardship distribution from a qualified retirement plan (Regs.
Those who withdrew funds for a first-time home purchase from an IRA or a hardship distribution to buy a home from a 401(k) or 403(b) plan, after February 28 and before August 29, 2005, but who cannot purchase or construct the home because of Hurricane Katrina, may pay the funds back to their IRAs or plans without penalty by February 28, 2006.