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Hardship Withdrawal |
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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. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| A second option, the hardship withdrawal doesn't have to be paid back, but it is subject to current-year federal income taxes and, if you're under 59 1/2, the 10 percent early withdrawal federal penalty tax. The other thing you will have to remember is that some of the 401K plans allow so called hardship withdrawals, and a person, who has a hardship, can decide to withdraw from the fund, the moment they do this the amount withdrawn is taxable and the person will not be able to give a contribution to the fund for a period up to six months. Even though you may be allowed to take a hardship withdrawal from a 401(k) to pay for a down payment on your main home, it isn't a good idea -- as you've discovered. |
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