401k Hardship Withdrawal
GETTING A 401K HARDSHIP WITHDRAWAL
A 401k hardship withdrawal may be available to you, in some circumstances. Each plan has different rules on if they will allow you to withdraw funds for use in a financial emergency. However, it is very important not to abuse such offerings since the IRS can easily deem these withdrawals as excessive and that could mean a hefty penalty you will have to pay.
What is a hardship withdrawal? You will need to look into the exact terms of your 401k retirement plans, but there are some terms that can provide you with some clarification. Generally speaking, in order for the withdrawal to qualify, it needs to be an immediate and heavy financial burden. For example, if you are facing foreclosure on your home or you are facing a job loss without the means to pay your bills, these may qualify as hardship excused withdrawals from your 401k retirement account.
Keep in mind that if you do not arrange to pay these funds back or they are seen as not being of a hardship nature, you could pay a 10 percent penalty plus income tax on these funds. You may wish to consult your tax accountant to determine if your situation qualifies and what type of penalty you may face. Why does the IRS tax you so heavily for these withdrawals if they are not hardships? The reason for this is simple. The income was never taxed in the first place and the funds were meant for retirement planning. Be sure that your case qualifies for a 401k hardship withdrawal before you take money from the account.
