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.
Over the next few weeks, 401kBasics will feature some of the most commonly asked questions.
“I recently contacted my 401k plan asking if I can take a hardship withdrawal from my account. I was told that in order to take one, I have to take a loan first. Is that true and why?”
Hardship withdrawals are designed to be your last resort. For that reason, if you have other assets, insider or outside of your retirement plan, you’re supposed to exhaust those first. Therefore, retirement plans often times require you to take a loan out first. The issue with that is that the loan payments may cause further hardship. Seems like a catch 22 right? Some plans will allow you to bypass the loan option if you can certify that it would cause further hardship. I recommend contacting your company or service provider to see if this is an option. If not, find out what the lowest amount is that you can borrow from your plan, and then perhaps after that you can take the hardship. Some plans will allow you to take a minimum loan of $250 or $500. That amount spread over 5 years would not amount to much money coming out of each paycheck.
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.