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By Deborah L. Alexander
Hardship Withdrawal Penalties of 401K Plans
Some contributions into a 401K retirement plan are available early in cases of hardship withdrawal. Hardship has to be proven and a fee or penalty usually applies.
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By Deborah L. Alexander
OverviewOne way to access 401k money in an emergency is a hardship withdrawal. Companies are not required to provide hardship provisions. You will need to check with your company.Ten Percent PenaltyAccount holders who are younger than 59 1/2 may be assessed a 10 percent tax penalty for withdrawing money from their 401k.Regular Income TaxBecause the deposits into a 401k plan are pre-tax, when you withdraw money you have to pay regular income tax on the withdrawal.Last ResortTo take a hardship withdrawal, you must first have obtained all distributions or loans available in your 401k account.Stop ContributionsYou cannot contribute into the 401k for six months following your hardship withdrawal.Five Allowable ReasonsHardship withdrawals can be for unreimbursed medical expenses, purchase of a primary residence, 12 months of college costs, prevention of foreclosure on or repair to your primary residence, or funeral costs.Prove You Need ItYou will need to prove that the hardship withdrawal is the only way to meet the expense.Resourcesreference401k Research Institutereference401k Basic InformationreferenceGuide to Hardship withdrawalsresourceBasics of Hardsip Withdrawals
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