Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! . Your feedback or suggestions on future articles is welcome.
Times are tough! Unexpected expenses are always showing up, and it often times seems like we’re just barely staying a float. We’ve heard it all before, “don’t withdraw from your 401k plan”. But when push comes to shove, sometimes it’s the only option you have. Below is the criteria most employers use in determining if you’ve experienced a “hardship” and can withdraw from your account.
1. Un-reimbursed medical expenses for you, your spouse, or dependents.
2. Purchase of an employee’s principal residence.
3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
5. For funeral expenses.
6. Certain expenses for the repair of damage to the employee’s principal residence.
A few things to keep in mind:
• Hardships are subject to income tax, and a potential 10% penalty if you’re under 59.5 years old.
• Hardships are not paid back.
• You are suspended from contributing to your 401k plan for 6 months after taking a hardship withdrawal.
• Some plans require that you take a loan from your 401k plan before you can take a hardship withdrawal.
• You have to provide documentation of your hardship in the form of bills, explanation of benefits, eviction notices…etc.
Before you tap into that retirement account, give it a long hard thought. Keep in mind that your 401k plan was designed for retirement and withdrawing early will subject you to taxes, penalties and will be detrimental to your long term retirement goals.
This site is for entertainment purposes only. 401kbasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.