Making Sense of 401(k) Hardship Withdrawal

How Can I Take a 401(k) Withdrawal Without a Penalty?

I read that at age 55 I can withdraw my 401(k) without penalty as long as I am leaving my job. Is this true for all 401(k) plans? Are there any specific reasons one has to have for withdrawal without penalty?  I need to use the funds to pay off bills and debts.

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Bill's Answer
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Highlights


  • Congress permits two types of 401(k) hardship distributions.
  • File a Form 5329 to report the tax on early distributions.
  • Your plan administrator will send you a Form 1099-R.

How Can I Take a 401(k) Withdrawal Without a Penalty?

A 401(k) plan is a type of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pre-tax basis. These deferred wages (commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and they are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W-2.

However, they are included as wages subject to Social Security, Medicare, and federal unemployment taxes.

Some plans allow employees to make a 401(k) hardship withdrawal because of immediate and heavy financial needs. Generally, 401(k) hardship distributions are limited to the amount of the employee’s elective deferrals only, and do not include any income earned on the deferred amounts. Hardship distributions are not treated as eligible rollover distributions.

Borrowing to Solve a Debt Problem?

If debt problems are the reason you are looking to take out money from your 401(k), get a no-cost, no obligation analysis of your debt options from a pre-screened specialist. It makes sense to evaluate your debt options in parallel with exploring 401(k) hardship qualifications.

401(k) Hardship Withdrawal Basics

A 401(k) hardship withdrawal is not like taking a loan from your 401(k) account. The withdrawal may be difficult to get, and costly to receive. Your 401(k) is intended to provide retirement income and should be a last-resort source of cash for expenses. IRS rules allow plan withdrawals (called distributions) in a limited number of hardship situations. To further discourage early withdrawals, Congress wrote harsh rules to impose a penalty tax in many situations.

Congress allowed two types of hardship withdrawals in 401(k) and other deferred-tax retirement savings plans. One subject to applicable income taxes plus a 10% early withdrawal penalty tax if you are younger than 59½. The other is a penalty-free withdrawal made under Section 72(t) of the Internal Revenue Code. With this, you pay applicable income taxes but not an early withdrawal penalty tax.

You may receive a 401(k) hardship distribution because of an “immediate and heavy financial need” and the distribution “is necessary to satisfy that financial need.” Let's look at the rules for penalty and no-penalty distributions, as found in IRS document Topic 558 and the IRS 401(k) Resource Guide - Plan Participants - General Distribution Rules. Refer to both of these documents for clarifications on the rule below.

Distributions Subject to a 10% Penalty Tax if You Are Less Than Age 59½

According to the IRS, the following reasons may be allowed by your plan's administrator for a 401(k) distribution:

  • Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
  • Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
  • Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents;
  • Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;
  • Funeral expenses; or
  • Certain expenses relating to the repair of damage to the employee’s principal residence.

Distributions Exempt From a 10% Penalty Tax

According to the IRS, the following reasons may be used for a penalty-free 401(k) distribution:

  • Distributions made to your beneficiary or estate on or after your death.
  • Distributions made because you are totally and permanently disabled.
  • Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
  • Distributions to the extent you have deductible medical expenses that exceed 10% of your adjusted gross income (7.5% if you or your spouse is 65 or over) whether or not you itemize your deductions for the year. The 7.5% limitation is a temporary exemption from January 1, 2013 to December 31, 2016 for individuals age 65 and older and their spouses. For additional information, see IRS Topic 502.
  • Distributions made due to an IRS levy of the plan under section 6331.
  • Distributions that are qualified reservist distributions. Generally, these are distributions made to individuals that are called to active duty for at least 180 days after September 11, 2001.
  • For 401(k)s and similar plans (but not IRAs), these three exceptions also apply:
    • Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental defined benefit plan if you were a qualified public safety employee (State or local government) who separated from service on or after you reached age 50.
    • Distributions made to an alternate payee under a qualified domestic relations order, and
    • Distributions of dividends from employee stock ownership plans.

Plan administrators and employers are not required to offer either type of 401(k) hardship withdrawal, so check with your administrator to learn which type of distribution, if any, is available to you.

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For more information, see the IRS’s 401(k) Resource Guide.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

178 Comments

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  • 35x35
    Jun, 2012
    sharlotte
    Can I get a hardship loan to bury a dependent?
    1 Votes

    • 35x35
      Jun, 2012
      Bill
      You should speak with your 401K plan administrator. I don't see a hardship exception for burying a dependent, but it is possible that it could loosely fit into another approved category.
      0 Votes

  • 35x35
    Feb, 2012
    Marsha
    We took a one-time withdrawal from my husband's 401K at age 59 1/2. We paid the 20% taxes at the time of distribution. My question is: does this allowed withdrawal count solely as income? We now owe an additional $2400 in Federal and $3300 in state taxes that we didn't realize we would owe. We thought that the 20% we paid up front would be all we owed. Do we have to pay the full amount of these additional taxes all at once or is there an allowable way to spread this over time without additional penalties and interest?
    1 Votes

    • 35x35
      Feb, 2012
      Bill
      The income was taxable and the 20% you paid did not fully cover your tax obligation. You can set up a payment plan with both the state and the IRS, but interest and penalties continue to accrue. I know of no way for you to avoid extra interest, other than paying the bill in full now.
      2 Votes

  • 35x35
    Feb, 2012
    PC
    Just received a letter from the IRS stating they have been trying to contact me since April 2010 about a tax issue, and that I now owe over 4k in taxes due in 3 weeks!!! I think this has something to do with my 401k I cashed out in 2009 when I lost my job, I was told by HR Block when I did my taxes it was a hardship and would not be required to file it. What can I do?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      You received incorrect information from your tax preparer. Whenever a person receives any distribution from a 401(k) or similar tax-deferred retirement plan, you must show that distribution in your income tax return. Consult with your tax preparer immediately to decide a strategy for resolving this issue.

      You may be able to get the penalties the IRS is charging you waived, if you can prove that you were following a professional tax preparer's advice. Also, if you can't afford to pay the IRS in three weeks, you can set up a long-term IRS payment plan that will protect you from a wage garnishment or bank levy.
      1 Votes

  • 35x35
    Feb, 2012
    Dee
    My husband's job changed hands and he chose to withdraw his 401K so that we could pay the exhorbitant bills for my cancer care. Our medical deductions did exceed the 7.5% and yet, this tax software I'm using keeps kicking it out and saying we still owe a 10% penalty. Am I missing something here?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      I cannot explain the behavior of your tax preparation software. Bills.com relies on the documents published by the IRS and the tax code when writing tax related articles and answering questions. See IRS 401(k) Resource Guide - Plan Participants - General Distribution Rules for a discussion of the medical exception to the 10% tax rule.
      1 Votes

    • 35x35
      Feb, 2012
      Dee
      Thank you for the reference. I guess my question should be...should we have indicated to the PAYER that the withdrawal was for medical expenses? Do we have to have a particular Distribution Code on the 1099-R for it to be recognized as allowable? I wish I had to money to go to a tax preparer, but I don't. I'm so confused and frustrated trying to make some kind of silver lining out of this dark cloud of last year... Thanks
      0 Votes

    • 35x35
      Feb, 2012
      Bill
      Yes, you need to indicate on the distribution application that you meet the "deemed necessary" rule for a medical hardship. See IRS Retirement Plans FAQs regarding Hardship Distributions to learn more.
      0 Votes

  • 35x35
    Feb, 2012
    Leo
    I was wrongly accused by my ex of family violence, but the case later dismissed by DA when they had no evidences going into trial a year ago; however, it cost me close to $35k in attorney's fees to keep up with the process and prepared for trial. Having spent another $20k in my divorce case; I was forced to tap into my former employer 401k and borrowed $15k from my account, which I used as final payments to my three attorneys prior to the trial day. During this time I made three payments before defaulting. Tried to catch up soon after but my 401k administrator returned my payments for I had violated the conditions of the loan. I received a 1099-R last week for the total amount distributed or borrowed. The inability to borrowing this money to hire these defense attorneys, would had spelled conviction of domestic violence for me, and therefore; destroying my personal and professional life. My question is: would these be valid reasons for considering my case a “financial hardship” so the 10% penalties would not apply? Your reply will be greatly appreciated and thanks.
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      Effective defense lawyers are expensive, but ineffective ones are even more expensive.

      Paying one's criminal or civil defense lawyer is not one of the hardships Congress included when it wrote the 401(k) code. Review the list of qualifying hardships above, and follow the link to the IRS page that explains qualifying hardships in greater depth.
      0 Votes

  • 35x35
    Jan, 2012
    Andrew
    Two years ago my wife and I decided pay off our credit cards by also withholding taxes from our paycheck. Now we are struggling to pay the back taxes debts to the IRS. Would this qualify as a financial hardship for me to take the hardship withdrawal?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      Review the list above to see what qualifies for a hardship. Also follow the link to the IRS resource on 401(k) distributions to learn more.

      I do not see what you described as a hardship fitting one of the qualifications Congress had in mind when it wrote the 401(k) law.
      0 Votes

  • 35x35
    Jan, 2012
    Nahulan
    In 2009, 2010, and 2011 my wife and I have had to liquidate our Rollover IRAs to the tune of over $200,000 to pay unreimbursed expenses related to our son's Autism. We have paid the 10% penalty, but we have deducted the expenses over 7.5% of our AGI. Could we have not paid the 10% penalty? How do we get it back for 2009 and 2010? How do I avoid it when I file in 2011?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      Check with the administrator to verify under what type of hardship you qualified. If it is a penalty free withdrawal, then speak to your tax professional regarding the correct manner to report the withdrawal, and the possibility to amend previous tax returns.
      0 Votes

  • 35x35
    Jan, 2012
    Robin
    I was terminated last year in March, I had to withdraw my 401K in order to pay expenses including my mortgage as unemployment does not cover them. In fact I am having to modify the home loan now as all funds are getting depleted. Do I qualify for a hardship?
    2 Votes

    • 35x35
      Jan, 2012
      Bill
      Are you referring to a hardship case for the 401k withdrawal, which you already took, and I presume paid a 10% penalty, as well as income tax on the withdrawal? Or, are you referring to a hardship case regarding the loan modification? I recommend that you read the Bills.com article about Government debt relief programs. Look into the HAMP program and read other articles that will give you more information.
      0 Votes

  • 35x35
    Jan, 2012
    Mitchell
    1997 purchased a home with another person. Loan based on both incomes, 2009 2nd person is now deceased. Will stated that persons share of home is passed on to survvor. In order for deceased person name to be removed from said property, i would need to reapplied for a loan based on my income, since tightening of credit could this qualify for a hardship withdrawal to pay off home so i could remove decease person from property.
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      The hardship rules may apply if you can't afford the payments and will face foreclosure. In any case you should speak with the administrator of the 401k regarding your rights to a hardship withdrawal.

      In general, if you keep making the payments, then your current loan should continue to be fine. I recommend that you speak with your estate lawyer regarding the best manner to register the transfer of title and maintain the current loan.
      0 Votes

  • 35x35
    Jan, 2012
    Tibisay
    Are we forced to use our retirement funds to pay for our late mortgage payments? We already used part of them and we are still upside down on the mortgage. We were declined under the Imminent Default Program. The bank is not accepting partials payments. We applied for HAMP loan modification program.
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      You cannot be forced to use your retirement funds. In general these funds are exempt from levies and liens. Before you withdraw funds from the retirement account, look over your financial position. Read the Bills.com article about debt relief solutions. The HAMP program is a possible way to modify your loan and get into a payment schedule that you can afford. I think it was wise for you to apply to HAMP. Please let us know how that process works out for you.
      0 Votes

  • 35x35
    Oct, 2011
    Terry
    If I rent a house from someone and the house goes into foreclosure, do I qualify for the 401K hardship withdrawal?
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      There are hardship withdrawal provisions for avoiding eviction. Whether your case will meet that test is a question that you need to direct to your 401k plan administrator.

      Separately, you do have special rights as a tenant who is renting a residence that goes into foreclosure. Read about the Protecting Tenants at Foreclosure Act 2009 and contact a tenant's rights organization in your area.
      0 Votes

  • 35x35
    Oct, 2011
    Chris
    Do they verify to make sure your hardship withdrawl is used for how you claimed. I am 2 months behind in mortgage and have a pile of medical bills. I just want to pull some out and pay a little on everything.
    1 Votes

    • 35x35
      Oct, 2011
      Bill
      In some cases, such as when purchasing a residence, the plan administrator requires disclosures that, in effect, verify the distribution is used for the stated purpose. For a hardship distribution, it depends on the administrator and your plan's rules. Consult with your administrator to learn your particular rules.
      1 Votes

  • 35x35
    Oct, 2011
    Frank
    Well I was terminated and I'm trying to start a business. I don't have time to devote to the business and job search (I'm a senior information technology exec so jobs are few and far between). I want to use my 401k to pay my living expenses for my family while I launch this venture. We are depleting our savings rapidly paying rent, I don't want to fall in arrears. Can I use my 401k under the hardship rule?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Follow the link in the original answer above to the IRS Web site to see the IRS's discussion of 401(k) hardship rules. If you are at risk of eviction or foreclosure, the hardship distribution rule should apply.
      0 Votes

  • 35x35
    Oct, 2011
    Kenneth
    My Company changed my comp plan this year and for the first time ever I will not be seeing a commission/bonus. I have 25,000 in credit card debt (and 4,500 in animal medical bills) and am living on expense reimbursements to pay my mortgage (hence the credit card debt). based on my current salary, i will not be able to pay my mortgage AND my bills for approx three months. I have 165,000 in 401 k but already took a loan out against it for 10k. does it make sense to simply take the tax loss and pay down my credit cards and mortgage until I receive my bonus in mid-January? I also have $10k in college savings (529) but my children are very young (6 and 3) so I was also considering pulling from this and settling taxes on it next April. Any suggestions you have here are greatly appreciated. Thanks K.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      A lot depends on the interest rates on your credit cards and whether or not you can hold things together until your bonus arrives in January. The more you are paying in interest, the greater the benefit of taking a hit on your retirement account and paying off the debt.

      In general, I am against withdrawing from retirement or the 529 accounts, if possible, because it results in the loss of about 40% of the withdrawal in taxes and penalties. If you run the numbers and see that your savings will exceed the costs of drawing on your retirement or college savings account, then take the money and pay the required penalties and taxes.
      0 Votes

  • 35x35
    Oct, 2011
    Laurie
    I have recently quit my job. Opened a small business. Applied for personal credit cards and maxed them out. Also used approximately $25,000.00 of my own money for start-up expenses. I have no operating cost to continue paying my business expenses and more stock. Would I qualify for a hardship loan to withdrawl my 401k?
    2 Votes

    • 35x35
      Oct, 2011
      Bill
      Based only on the facts you provided, you do not qualify. Are you struggling to pay a mortgage? Are some of your debts related to significant medical debt?
      0 Votes

    • 35x35
      Oct, 2011
      Gina
      I have been unemployed for more than two years. I am no longer receiving unemployment benefits. I am about to deplete my savings. I live in an apartment. Am I entitled to a hardship loan in order to keep my place of residence
      1 Votes

    • 35x35
      Oct, 2011
      Bill
      On the IRS Web page 401(k) Resource Guide - Plan Participants - General Distribution Rules, we find the rules for receiving a hardship distribution. The relevant rule for you is, "A distribution is deemed to be on account of an immediate and heavy financial need of the employee if the distribution is for... [p]ayments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;" See the link just mentioned to learn more.
      0 Votes

  • 35x35
    Oct, 2011
    M
    If I were to take a hardship withdrawal to purchase a primary residence and then decide I did not want that specific house could I change the house that the the money was applied to or return the money to the firm?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Check with your plan administrator. There is wide leeway given to plan administrators, so there is no one-sized-fits-all answer that I can give you.
      0 Votes

  • 35x35
    Oct, 2011
    Susan
    Had insurance and husband had heart albation surgery. Our cost was about 8,000. Lost our insurance. Immediately after heart surgery, husband started having issues with the medication required after surgery. Cardiac docs said not his heart. Over period of 10 months we had to pay out of pocket to see 8 different doctors and two medical procedures to find out what was wrong with him. Now have a medical diagnose of an incurable condition. We now have over $15,000 in medical debt, no insurance and make 38,000 a year. I'm on unemployment, but will be losing soon. We feel as if we're drowning in medical debt. We do have two 401K. Might we qualify for a 401K hardship withdraw?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      Given the size of your medical debt as a ratio of your income, yes, I would say you qualify for a hardship exemption. See the link to the IRS distributions page mentioned in the original answer above to learn more.
      0 Votes

  • 35x35
    Sep, 2011
    Karen
    My husband was very sick for two years and in a nursing home/acute hospital for over a year. Our insurance picked up quite a bit. However, by August 2010 I had to start applying for Title 19 for my husband. I told the T19 people that my 401K should not be a counted resource. But they sent me a letter stating that I had to liquidate it. I was still not told at that point that we were definitely approved. My 401K (gov't TSP) told me I could only have one hardship withdrawal. My choice was only take out 12K of my 401K to qualify and leave the rest in, or take out approx. 50K incase the T19 did not work out and then I would have some cash flow for my husband. It was an awful time. I no sooner completed the hardship w/d and T19 told me oops, you didn't have to do that and by the way your husband is approved. I have all the notices. My poor husband died shortly thereafter on 12/31/10. I am just coming out of my fog and realize that I have to file my 2010 taxes by 10/15/11 (I filed an extension). My question is would these facts support an exception to the penalty, in your opinion? I am just very overwhelmed at this point and am not sure what to do. I contacted a few professionals and they are too busy or just not interested so I am going to file myself. Any insight is greatly appreciated. Thank you. Karen
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      I am reluctant to answer detailed tax-related questions because I never have enough details to provide a helpful response. Consult with a tax lawyer in your state who can analyze the written documents you have that show exactly what transpired and when, and who said what when. I realize my answer is not what you were seeking, but you need the help of someone local, and not advice through e-mail or a Web posting.
      0 Votes

  • 35x35
    Sep, 2011
    Sri
    Hi Bill, I have 401k account and want to get withdrawl as i have a lot of debt, and also last week i got my brokarage account closed with negative 10000 balance as i was using margin, Is there a way i can get withdrawl as i already used my loans based on my situation. Thank you for your help in advance.
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      You have to speak to the plan administrator to see whether you can make a withdrawal when you have loans outstanding. I suspect you can't, but only speaking directly to the administrator will give you a proper answer.
      0 Votes

  • 35x35
    Sep, 2011
    Patsy
    I was terminated from my job nearly 6 months ago, and have relinquished all my assets to keep my bills paid. I have put student loans in deferment, medical bills going to collections, etc. I have tried to redeem my 401k in order to keep up with my bills, but I have been told by my former employer that I must wait until their annual distribution date rolls around to collect those funds. Is there any way around waiting for that date...in order to avoid going under meanwhile?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Plan administrators are given broad leeway. I don't know if you have a good way to get your funds prior to the annual distribution date. Have you spoken to them about borrowing from the 401(k) account? Try that and also asking if there are any hardship exceptions to the annual date.
      0 Votes

  • 35x35
    Sep, 2011
    Karen
    Hi Bill, I recently got laid off and I'd like to apply for a hardship withdrawal from my IRA. Reviewing ADP's website, it appears that the company's HR is needed to process this. Is there a way to do it independently or should I contact my old company?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      The rules for taking money from an IRA are different than from taking out from a 401(k) plan. You should contact whomever administers your IRA to find out the hardship rules, although it is my feeling that the fact that you are unemployed is not sufficient to avoid penalties for early withdrawal.

      If it is a 401(k) that you have, then you should speak with the plan administrator, too.
      0 Votes

  • 35x35
    Sep, 2011
    maureen
    This is a 401K medical hardship withdrawal question: Here is what happend. We have high deductible health insurance and an HSA. Combined employer and employee payments into the HSA were only $300 per month (we are low income). We are in our 50's with two disabled children. Our prescriptions alone cost over $400-600 per month depending on where we are in the deductible, and we have had several dental emergencies costing thousands of dollars our of pocket. We also still pay high copays after the very high family deductible is met. We have paid out every penny of the HSA, every month, and put much of the rest on credit cards that are now maxed out and bringing us to financial ruin with interest payments. We have two small 401Ks ($15K total) that we would like to cash in under medical hardship withdrawal rules given the very high percentage of our GAI that has gone to medical expenses. There are two complications that I can see: some of these bills were paid through the HSA (we contributed 2/3 of those funds - is the 1/3 contributed by the employer considered reimbursed?). Second, we actually, perhaps very foolishly, paid most of these medical bills with the credit card - we could not anticipate that they would be so high (especially the dental emergencies) that they would max out. There is no question of our financial situation being to the greatest extent due to unanticipated levels of medical bills that no $300 per month HSA could cover. The numbers for medical expenses are well over the 7.5% of Gross Annual Income. Do we qualify for a medical hardship withdrawal, or would it have been necessary to not pay bills all year? Incidentally, this is NOT possible in the real world. Dentists will not treat you without insurance if you do not put down a credit card or some other commitment to pay. It is not possible to "not pay" for expensive, but medically necessary prescriptions. What is your take on this?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      The fact you paid all or part of your family's medical expenses with a credit card is a red herring — a non-issue. The fact is, whether your creditor is a credit card issuer or a medical service provider does not matter — the source of the debt matters. In this case, it appears you have ample documentation to prove you have thousands in medically related debts, some of which happens to be owed to your credit card issuer. Consult with your 401(k) administrator about a medical hardship distribution. If the administrator balks at providing a hardship distribution, shower him or her with copies of your receipts and an accounting of your medical expenses this year.
      0 Votes

  • 35x35
    Sep, 2011
    Dawn
    Our well went out 4 days ago and the bank denied us a loan. We called the HR department at my husband's work and they got ahold of the 401K company to see if this qualified as a hardship. We were told no! But, paying for college or buying a house is a hardship!? We are so frustrated. What are your thoughts? Do you think it would help if we contacted the 401K company ourselves? Are we out of line thinking this is a hardship?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      As a homeowner of a property served by a well, I am painfully aware of the cost of replacing pumps, etc., and drilling a new well. Nevertheless, a new well does not fit the definition Congress had in mind when it wrote the 401(k) guidelines. See the IRS link in the original answer above to read the distribution rules yourself.

      One alternative: Consider a 401(k) loan.
      0 Votes

    • 35x35
      Sep, 2011
      Dawn
      Thanks for your response. It doesn't make us feel any better though. Unfortunately, the amount of the 401K loan that we are eligible for would only cover maybe half of what we need for the new well. Wow, what do people do in situations like this. We both have good jobs (just too much debt), so we would not qualify for any assistance. I guess an alternative would be to let the house go into foreclosure since there are not well drilling companies that will take payments around here. Sad. We have really good credit too.
      0 Votes

  • 35x35
    Sep, 2011
    suzanne
    My Husband's company is splitting up and they have the opportunity to either roll over or withdraw their 401K. Our daughter has a medical issue that we have not been able to take care of due to the expense. If my husband takes his money from his 401K at this time will the money we use for this medical expense be penalized or is it exempt?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Please see my reply to John G. on September 9, 2011 on this page for a discussion of medical hardship distributions and 401(k) plans.
      0 Votes

  • 35x35
    Sep, 2011
    Noel
    Our home is in my name and we are facing foreclosure. My husbands 401k program will not let him do a hardship withdrawal to save our home because his name isn't on the documents. Is there anyway around this? Maybe providing proof of residence and marriage?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      First, does the 401(k) plan in question allow hardship distributions. Congress wrote the 401(k) laws as guidelines employers are free to make more stringent.

      Second, if the 401(k) plan allows hardship distributions, talk to the administrator in a non-confrontational manner to learn what you can about what it needs to document a loss-of-housing hardship. Requiring the employee to be on the loan documents is, in a word, unreasonable. Perhaps quit-claim deed the property to the employee. Or, as you mentioned, document that the employee resides at the property and is married to the homeowner.
      0 Votes

  • 35x35
    Sep, 2011
    John
    Bill, My wife and I have gone through a IVF fertility cycle last year unsuccessfully and it drained our accounts. Since she is nearly 33 we want to attempt another cycle. Can you PLEASE help me determine the best way to tap into my 401k (without penalties if possible)? I work for Boeing. In addition: I actually have about $50k sitting in another 401k account from my previous job I left 3 year ago. I haven't touched it since I left. Thank you soooo much!! John and Kristine
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      First, consider a loan from your 401(k).

      Second, review the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules, and see the discussion on expenses for medical care. As I read this document, you may need to go into debt for the medical treatment, and then apply for a distribution. Consult with your 401(k) administrators — your present plan and your previous plan — to learn the rules and procedures for applying for a medical-related distribution. The 401(k) rules set by Congress are guidelines, and each employer is free to create specific rules for their plans.
      0 Votes

  • 35x35
    Sep, 2011
    Kim
    Bill, I have been divorced for 6 years. My portion of my ex's 401K got split using a Quadro agreement. I was told I would get a check cut and have the option of investment options. Year later finally found out that it was under his work guidelines. Unable to touch any of the money. Trying for a medical hardship due to being diagnosed with cancer in 2008 and now on dissability. They are putting me thru the ringer on allowing me the money. Is there anyway to return to a lawyer and try to get this money? Can't pay medical bills, barely getting by and about to lose my vehicle. Struggling now, with all that money sitting there that I will probably not live long enough to ever use. Wondering what options I have if I involve a lawyer? Thank you
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      A Qualified Domestic Relations Order (called QDRO and pronounced "quadro") is a court order directing a pension plan administrator to distribute a portion of an employee's retirement plan to the employee's soon-to-be-ex-spouse. It is unclear to me if the 401(k) administrator in your case followed the QDRO completely. Consult with your divorce lawyer to learn if the QDRO was followed.
      0 Votes

  • 35x35
    Sep, 2011
    Pat
    I going to a very difficult time already behind 60 days on my mortgage & equity payments, I have 2 kids 8 and 2 years old and my wife is not working. All we have is some money on my 401K. Can I get money from my 401K to pay the months we are behind on our mortgage and equity? Is there any way to do this with talking about with my employer?
    1 Votes

    • 35x35
      Sep, 2011
      Bill
      You need to speak with the 401(k) plan administrator to make your withdrawal and to discuss whether your financial hardship allows you avoid the 10% penalty for early withdrawal (keep in mind that you have to pay taxes on the withdrawal regardless). If you wish to pay the 10% penalty, when it is likely not required if you explain your hardship, you may not have to go into any detail about why you want the money.
      1 Votes

  • 35x35
    Sep, 2011
    Sherri
    How many times can you apply for a hardship?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      I recall no limitation mentioned in the statute. That leaves this question up to each 401(k) administrator.
      0 Votes

  • 35x35
    Aug, 2011
    Charity
    Does car repossession qualify as a hardship?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      In terms of avoiding a penalty on a withdrawal from a 401(k), probably not. Clearly it is a financial most any other way one looks at it.

      Check with your 401(k) plan administrator, to see if it meets your plan's hardship rule.
      0 Votes

  • 35x35
    Aug, 2011
    Joshua
    Hello Bill. My wife and i are currently involved in buying our first home and our plan was to take a hardship withdrawl in order to handle the down payment we supplied a application for this process with a purchase agreement stating that we are to close on or before a specific date now when it was reviewed by her 401k company they said that before issuing me the check they needed to have a close date issued by the bank so in contacting the bank they said they can not issue a close date with out me first having possession of the funds any ideas on how to get this resolved as it seems I am in a dead lock.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      I have two suggestions:
      1. Try to get the two parties on a conference call, to see if a solution can be reached that satisfies both parties.
      2. Ask the 401(k) plan administrator if you can get a check made out to the bank that's use is restricted to paying off the loan.
      0 Votes

  • 35x35
    Aug, 2011
    Nic
    Hi Bill. My wife and I are getting a divorce and for cash flow purposes we were planning on taking out both of our 401K's to pay off all of our debt. It simplifies our divorce but more importantly allows us to afford two separate homes. We are both employed by the same company and they have agreed to allow us to take out our entire amount in our retirement accounts. When the company went to Securian, the administrator of the plan, they have said no and it was against the law. We are ok paying the penalty and our employer says they will allow it even though they typically only do this on termination of employment. It is a special circumstance and it is my money and my employers money (since they contribute to the plans as well) and we all want access to it. Can Securian say no and why would they care? Thanks Bill.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      See the IRS 401(k) Resource Guide - Plan Participants - General Distribution Rules to read the general guidelines that Congress created for 401(k) distributions.

      Divorce is not, according to Congress, a hardship. (Many would beg to differ, but I digress.) You cannot decide to take a distribution from a 401(k) because of a divorce. However, you can take a distribution, under the general guidelines, to buy a house. Perhaps if you phrased your distribution request differently you might have more success.

      Congress wrote the 401(k) rules as guidelines, and it is possible that your employer wrote tighter rules than those listed on the IRS Web site. Engage your 401(k) administrator in a meaningful dialog to learn what distribution rules are written into your plan.
      0 Votes

  • 35x35
    Aug, 2011
    Ernest
    Hello Bill, I recently tried to take out hardship withdraw from my 401K account to pay from student loans but I was told that I didn't qualify. I was told it only to pay college tuition for yourself or a dependent, provided the tuition is due within the next 12 months as you stated. My question is, why can we use the hardship to pay loans that are outstanding, and also I wanted to catch on my car loan which up fop repo. I mean it's my money and I understand it's important to not touch it but I'm under a lot of stress with helping my mother with her bills because she had hip surgery.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      The simplest answer I can give is that the rules are the rules. I do think that you are quite perceptive when you speak about the importance of not touching this money. The rules were certainly implemented to create a disincentive for taking money out of retirement accounts.

      Whether fair or not, rules were established that define a hardship for 401(k) withdrawals. If your reason does not meet the rule, then you will pay the 10% penalty. This is a risk that you take when you choose to put the money in a 401(k) account and take advantage of the tax breaks that go with it.

      You can take the money out, if you choose to, but will be subject to taxes and penalties.
      0 Votes

    • 35x35
      Aug, 2011
      Ernest
      Thanks!!So even though I don't meet the requirements, I still can do hardship withdrawals?
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      If you don't meet the hardship rules you can't do a hardship withdrawal, but you can take out funds and be subject to the 10% early withdrawal penalty and income tax. Expect to lose about 40% of what you take out in taxes and penalties.
      0 Votes

  • 35x35
    Aug, 2011
    leigh
    You should be able to take money from your 401k anytime. This money is yours and does not belong to the government. They should not be able to mandate when you take it out or how much you take out. They are not going to help you with any social security in later years, so they don't need to worry about your own private account.
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      The government does not stop people from taking money from their 401(k) accounts. It just taxes them on any withdrawals and penalizes them for certain withdrawals. Whether that is fair or not, it should not be a surprise to anyone who deposits money into a 401(k).
      0 Votes

  • 35x35
    Aug, 2011
    Chuck
    I'm wanting to take a 401k Hardship Withdrawal from my JPmorgan Chase 401k. I have read somewhere that they require that all loans and non-hardship withdrawals be exhausted first. My question is, as an administrator, what is the point of offering a Hardship Withdrawal if I am being required to take a loan against the amount I want, first? FYI- I already have one sizable loan and don't need another!
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Congress set guidelines for 401(k) plans, and not extensive, detailed rules that control each tiny aspect of every 401(k) plan. Therefore, the details of 401(k) plans vary, and it is not like Social Security where one set of rules covers everyone. The best place to find authoritative answers to your questions is your plan administrator.
      0 Votes

  • 35x35
    Aug, 2011
    chuck
    I'm going through a divorce. I'm taking the house and will have to buy out my wife's half of the house minus what we owe. Can I use my half of my 401 and transfer that to her to cover the buy out on the house?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      I don't believe that your scenario will meet the hardship rules to avoid the 10% penalty for early withdrawal. Speak to your plan administrator to see if you have to pay the penalty or not.

      However, even if you have to pay a penalty, that does not mean that you can't use the funds, if you are willing to pay the penalty and taxes on what you withdraw. Speak to a financial advisor to see the best way to meet the terms of the divorce decree at the lowest cost.
      0 Votes

  • 35x35
    Aug, 2011
    Sandy
    I recently had to take a 30% cut in pay. With this pay cut I am unable to pay for my entire mortgage and other living expenses. Am I eligible for a hardship on my 401(k)?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      You need to speak with your plan administrator, to see how dire your circumstances must be to avoid the 10% penalty for early withdrawal. Remember that you still have to pay income tax on what you take out, even if you have a hardship that meets the rules to avoid the withdrawal penalty.
      0 Votes

  • 35x35
    Aug, 2011
    Becky
    Hi, my husbands employer has sold his division to another company, but we had a 40lk loan we were paying back thru the original company, they made it possible for us to have payments deducted from our checking account, although we also had the option of defaulting on the loan. We would now like to borrow again but we are being told that until the original loan is paid off they won't allow it.They have told us until the loan is paid off we can't even put the money into another retirement account.' We would like to take the balance and put it into another account because the new employer matches our contributions. But because we are paying back the loan at large amount a month, it is not in our budget at this time. Thanks for your response
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      401(k) plan rules vary. If your plan administrator is telling you that you can't borrow again until you have paid back your loan, it is likely accurate. While your situation is not ideal, at least when the company division was sold, you were not forced to repay the loan or have the funds you borrowed count as withdrawal. That would have subjected you to taxes and penalties.
      0 Votes

    • 35x35
      Aug, 2011
      becky
      I guess my next question would be, the plan was changed from allowing you to have two loans to then only one loan, but we were not told that this was a change until we tried to apply for a second loan,don't they have to disclose this information? at this point we are almost willing to pay the 25% tax and declare the loan as income, and take the funds we paid every month and put that into a new retirement account, as the new company matches that. The loan won't be paid off for another 4 years,
      0 Votes

    • 35x35
      Aug, 2011
      Bill
      There are generally dislcosure rules that plan administrators must follow. I suggest you contact your state's Department of Labor or the US Department of Labor to see if your plan acted properly.

      Regarding the matching funds and whether or not you should withdraw funds and pay the taxes and penalties, you should do the math. How much would you lose by paying the taxes and penalties and how much will you gain in matching funds? You also need to account for how the funds will adjust (break out your crystal ball and decide if they will go up or down).
      0 Votes

    • 35x35
      Aug, 2011
      becky
      Thanks again for the information,I agree there are several factors involved in making the right decision.
      0 Votes

  • 35x35
    Jul, 2011
    Rosie
    I am currently on disability, do i need to contact them if i received a 401K check?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      If you're receiving SSI disability, then you should report the money to the SSA. SSI is a needs based program. If you are receiving some other kind of disability income, I don't see the harm in contacting whomever pays you. This way, you eliminate the chances that you receive income you are not entitled to receive, which can lead to a burdensome repayment.
      0 Votes

  • 35x35
    Jul, 2011
    Kathy
    My husband has had three surgeries since May 2010. I have put thousands on my credit card. How far back can expenses go when considering a hardship withdrawl?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      There is no cut-and-dried answer to your question that I am aware of. According to the IRS, "Whether an employee has an immediate and heavy financial need is to be determined based on all relevant facts and circumstances..." and "A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee. A distribution is deemed to be on account of an immediate and heavy financial need of the employee if the distribution is for ... Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care..."

      What I just quoted are guidelines set by Congress. Consult with your 401(k) plan's administrator about the exact rules your plan uses for hardship withdrawals.
      0 Votes

  • 35x35
    Jun, 2011
    Charles
    Hypothetical question here...If I have 100k available for a hardship withdrawal to purchase a primary and take that amount but only use 80k of it to buy a house...what are the ramifications of this? Are there additional penalties on the 20k if its not used? TIA
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Congress set guidelines for employers to create 401(k) plans. Employers have freedom to set rules that are stricter than the federal statute. What does this mean to you? In 401(k) plans I have seen, employers will request documents to show exactly how much is required for a home purchase. If the documents are accurate, there will not be the overage you suggest. If your 401(k) administrator is looser in documentation requirements, such an overage may occur.

      Were such an overage to occur, the IRS would treat it as a distribution, and you would be required to pay a 10% penalty tax if you are less than 59½ years of age.
      0 Votes

  • 35x35
    May, 2011
    Stephen
    I would like to roll my 401k to a IRA. I still work for the same employer that this 401k plan is with. The Employer (a corporation) Lays-Off its work force every year for a couple months, can I request my 401k roll-over then during lay-off? (I collect State unemployment during this time) I don't plan to quit or get fired, but I really don't like the choices available in this company's plan. Where do I look to find the answer?
    0 Votes

  • 35x35
    May, 2011
    Gregory
    I relocated out of state to stay employed with the federal Government. When I tried to sale my home I learned that I owed more than what the home is worth; it is currently on the market for sale. I also just went through a divorce and was ordered by the court to pay a large amount in child support each month. I can't continue to afford to pay my living expenses living out of state, while continuing to pay the mortgage on my vacant home, so for a fast sale I decided to reduce the price of the home. I don't want to take a FICA credit hit by selling my home as a short sale. So I was wondering if I would qualify to receive a TSP hardship loan to pay off any outstanding amount that is due at closing when my house sale?
    0 Votes

    • 35x35
      May, 2011
      Bill
      Talk to your 401(k) administrator about a loan against your 401(k).
      0 Votes

  • 35x35
    Apr, 2011
    Tommy
    I am 57 years old and just lost my job. Can I take a 401 withdrawal, penalty free to pay the mortgage / bills etc.
    0 Votes

  • 35x35
    Mar, 2011
    kenneth
    how many times can i take a hardship withdraw for buying a house
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      Different 401(k) plans have different rules. Even if the IRS allows you to use the funds in your retirement account to purchase a primary residence, company plans are not required to allow employees to make such withdrawals. Check with your plan administrator to find out the rules that apply to you.

      Additionally, keep in mind that depending on how you access the funds, you may have to pay significant tax penalties for using the 401(k) funds. Ask the plan administrator if you can borrow from your account. If you can access money that way and afford to repay the 401(k) loan and your mortgage payment, you will avoid incurring taxes on those monies.
      0 Votes

  • 35x35
    Aug, 2010
    Bill
    Do not accept the administrator's word as gospel. Review your plan rules yourself. Hire an attorney if necessary to interpret the distribution rules for you if they are convoluted. Be aware that Congress gave employers guidelines for 401(k)s and much flexibility in creating their own distribution terms and conditions. But, as I mentioned, 401(k) administrators are human and make mistakes.
    0 Votes

    • 35x35
      Jan, 2011
      tammy
      I have a question, I have no running water in my house with a 6 year old grandson, would that be considered a hardship to withdraw some to have my water put in?
      0 Votes

    • 35x35
      Jan, 2011
      Bill
      Restrictions on 401(k) withdrawals vary from plan to plan. What you need to do is speak directly with your plan administrator. You should also check with your city, county, and state, to see if there are any programs available that offer financial aid for someone in your circumstances. It may be useful to speak with your local and state representatives, to see if someone can help you locate such a program.
      0 Votes

  • 35x35
    Aug, 2010
    Tammy
    We need to take an early disbursement for a settlement on a foreclosure of a second mortgage on our primary home. Our plan administrator says its all or nothing... we only need $10000.00 but they are saying we need to close the entire $60000.00 or we can't get the money. Why would we pay a 10%tax plus income tax on the $60000.00? We only need $10000.00 to save our home. Are we being mistreated by our plan?
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    Ted, the answer to your question is maybe. If your spouse is considered disabled, then see my answer to Ray above dated 11/09/2009 that discusses this issue in detail. If your medical debts are high (above 6.5% of your income, if memory serves), you may be able to take a penalty-free distribution. Consult with your 401(k) administrator for details.
    0 Votes

  • 35x35
    Jul, 2010
    TED
    My wife was injured in an auto accisent. She tried returning to work but has been unsuccessful. Can she withdraw 401 k without penalties. What would she have to pay out of the 60k
    0 Votes

  • 35x35
    Jul, 2010
    Bill
    I have not read any laws allowing the IRS to seize funds from a 401(k) or similar retirement plan to satisfy a delinquent tax bill. Readers, I welcome your input. See the Bills.com resource IRS debt to learn about your options for resolving your IRS tax bill.
    0 Votes

  • 35x35
    Jul, 2010
    just
    If I owe IRS and want to take my 401K out will the IRS take my money? I lost my job and Im in desperate need of my 401K
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    A Tax-Sheltered Annuity Plans (403(b) Plan) is a retirement plan for some employees of public schools, employees of tax-exempt organizations, and ministers. It has tax treatment similar to a 401(k) plan, the only important differences for the participant are some additional ways that they can withdraw employer money, not salary-deferral money, before the typical 59 1/2 age restriction, but only if the plan is funded with annuities and not mutual funds. See the link I mentioned, and also consult with your plan administrator for specific rules regarding distributions under your plan.
    0 Votes

  • 35x35
    Jun, 2010
    Ben
    I would like to know if hardship distributions from a 403B plan are a one time occurrence in life, or if another distribution can be acquired before retirement age, and if another is allowed, how much time must elapse between distridutions? What are the rules?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    The details of a Thrift Savings Plan, an employee-funded retirement program for federal employees, differ significantly from a 410(k). I see two options for you. First, a loan from your account. Second, a hardship distribution for expenses relating to a divorce. Consult with your Thrift Savings Plan administrator about these two options, and ask if there are other options I overlooked that might better match your needs.
    0 Votes

  • 35x35
    Apr, 2010
    Heath
    Hi, I went through a messy but equitable divorce 4 years ago, and now I'm divorcing my second wife under much more dire circumstances. She has endangered the wellbeing of our baby on many occasions and I decided to leave to protect him. At any rate, I seperated from her, taking the baby, and in my absence she filed a bogus "Domestic Abuse" court order. Its a long story with gory details, but because the ways the laws are written, her accusations are enough to have me homeless right now. Technically, I've been evicted by court order from the home that I own. I have hired an attorney and filed my own court papers for divorce, but until the community proporty is settled the court order isn't official because a decision has not been rendered... Am I stretching things when I read the rules and can't find a contradiction in paying legal fees for an attorney to prevent losing my home and being permenantly evicted from my primary residence? Ultimately, it is up to the plan adminsitrators to reject or accept an application. Technically, it isn't a 401k plan but rather a Thrift Savings Plan. The amount I need is not a fortune but it will help. Am I finding a reasonable loophole here?
    0 Votes

  • 35x35
    Apr, 2010
    Bill
    Use the unexpected surplus to buy textbooks or, if you daughter does not have one already, an inexpensive laptop or netbook and external backup drive.
    0 Votes

  • 35x35
    Apr, 2010
    Katie
    Hi Bill. I am getting a Hardship Distribution to pay my daughter's college tuition as I have no other way to pay. What happens if the tuition is lowered due to an appeal to the financial aid office and I received more from the distribution than I need to pay it? Thanks very much.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    S: Please see my answer to Joey above dated 10/27/2009 regarding foreclosure and 401(k) distributions.
    0 Votes

  • 35x35
    Mar, 2010
    S
    I have a question on the "prevent foreclosure" exception. I lost my job 3 years ago and I have used my savings to keep (most) bills paid but I am at the end of my reserves and unless I get a new job or income I will start missing mortgage payments soon. My once great credit is in the crapper and my house is "underwater" so loans are not possible. Since the reason for tapping my 401K is a last resort to prevent missing my house payments is that the same as preventing foreclosure (which will certainly happen if I miss several payments)?
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    Consult with the attorney or program administration company that set up your plan to see what rules govern this situation. Each 401(k) plan is unique. Congress set up the 401(k) guidelines to give employers flexibility to create rules that make sense for the employer and employees. See the IRS document 401(k) Resource Guide - Plan Sponsors - 401(k) Plan Overview for some general guidelines. Generally speaking, if an employer winds-down a business or discontinues a 401(k) plan, it is best from a tax perspective for the employees to rollover their 401(k) balances into IRAs. I realize that I am not answering your specific questions. However, since I am not familiar with the exact rules of your 401(k) plan I can't give you accurate information.
    0 Votes

  • 35x35
    Jan, 2010
    Ryan
    My husband and I own a small business (corp) that offers a 401K plan to employees. Due to economic circumstances we are considering a hardship withdrawal for us but is that allowable since my husband is the trustee of the plan? There are only 3-5 people even left in the plan at this point so I guess we could consider terminating the plan altogether? If we did that, could all employees get there money out even if they were still employed?
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    I know painfully well how expensive college textbooks are today, but in my opinion you would be stretching the definition of "hardship" for a penalty-free distribution from a 401(k) beyond the breaking point. Extra credit for creativity, though.
    0 Votes

  • 35x35
    Dec, 2009
    Ruth
    Does a hardship withdrawal for college tuition include cost of books?
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    See § 72. Annuities; certain proceeds of endowment and life insurance contracts for the following:

    (t) 10-percent additional tax on early distributions from qualified retirement plans
    (1) Imposition of additional tax If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
    (2) Subsection not to apply to certain distributions Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
    (A) In general Distributions which are - (i) made on or after the date on which the employee attains age 59 1/2, (ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee, (iii) attributable to the employee's being disabled within the meaning of subsection (m)(7)

    Subsection (m)(7) reads as follows:
    (7) Meaning of disabled
    For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.

    If I read Section 72 correctly, if a person qualifies as disabled under subsection (m)(7), he or she may take a distribution from a 410(k) plan without paying the 10% penalty.
    0 Votes

  • 35x35
    Nov, 2009
    ray
    My wife was in a car accident last year which left her permenantly disabled, she was notified that she must withdrawl her 401k or roll it over in to another plan. does she qualify for a penalty-free withdrawl if she cashes out?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    Congress created basic 401(k) hardship and loan rules, and gave plan administrators the right to tighten those rules when setting-up 401(k) plans. Sit down with your plan administrator and ask him or her to show you the rules in your plan that require you to be served with a foreclosure notice before you have a hardship. If that requirement is spelled out with clarity in your plan's rules, then your administrator is bound by the rules. However, if the plan uses the same language in the IRS "401(k) Resource Guide - Plan Participants - General Distribution Rules" then in my humble opinion the administrator is being very conservative in his or her interpretation of the rules. I am not aware of any administrative appeals process available to plan participants who believe their 401(k) plan administrator is not interpreting the rules properly. Your alternative is the court system.
    0 Votes

  • 35x35
    Oct, 2009
    Joey
    My husband lost his job 9 weeks ago. We are currently 2 months late on our mortgage (Sept.&Oct). I have been told by my plan admin. that I can not receive a hardship withdrawl b/c I don't qualify since I have not been served with a foreclosure notice. I have explained several times that I have all of the default notices & bills to prove that we are behind. Right now the only thing that we can do to catch up, so that our credit is damaged any longer is to remove the money from my 401K account. I have been told by the lender my state doesn't take action to foreclose until 6 months in default. What can I do?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    There is no legal significance between applying for a hardship when an employer is operating or has ceased operations. In either situation, a plan administrator interprets the rules the employer wrote when setting up the 401(k) plan. The penalty taxes are paid to the IRS, customarily. See the IRS 401(k) Resource Guide - Plan Participants - General Distribution Rules (see link above) for more information on hardship rules. Incidentally, when asking 401(k) plan administrator, it is not enough to say, "I have a hardship." You need to have a hardship that meets the IRS definition, something like, "I am facing an immediate eviction, have no other source of funds, and if I do not receive a distribution from my 401(k) plan I will be evicted from my house." Of course, what I just wrote is hypothetical and may not match your circumstances. Review the IRS rules to see the list of all hardships Congress was willing to accept when it wrote the 401(k) laws.
    0 Votes

  • 35x35
    Oct, 2009
    Jackie
    I need to make a hardship withdrawal of $3500. My company is possibly going to close in the coming weeks. Is it best to wait and withdraw once my job ends or is now just as good. Also, do I pay total of 30% in tax penalties, because the paperwork says 10% penalty imposed. When do I pay the other 20%, to who and can I just pay the full 30% upfront and get that over with?
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    The rules for 401(k) plans are few, and Congress gives employers the ability to create plans with rules more stringent than outlined in the law. For example, employers are permitted but not required to allow hardship withdrawals. Regarding your question, according to IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules, "Generally, distributions of elective deferrals cannot be made until one of the following occurs...You reach age 59½ or incur a financial hardship." Distributions must begin at age 70. However, I can find no rules that require employers to allow distributions at 59½. I suggest you review your 401(k) plan documents to see under what circumstances your employer allows distributions. It is entirely possible that the human resources person- or whoever told you a distribution was not allowed - was completely wrong. On the other hand, your employer may have set up a very conservative plan that does not allow distributions until separation.
    0 Votes

  • 35x35
    Oct, 2009
    Celeste
    I am 59 and 1/2 yrs old and requested a withdrawal from my 401k from my emploer. I was told I have to be separated from my employer before I can get a withdrawal. Is this true?
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    According to the IRS Retirement Plans FAQs regarding IRAs, "There are no prohibitions on distributions from IRA-based plans. A participant can take distributions at any time. However, in addition to the distribution being taxable, it may be subject to a 10% additional tax if the participant has not reached age 59 1/2. If the distribution is taken in the first 2 years of participation in a SIMPLE IRA plan, the additional tax is increased to 25%." A tax planner will be able to review your previous tax returns and current income to compute an accurate estimate of the taxes you need deducted.
    0 Votes

  • 35x35
    Aug, 2009
    Ed
    Unable to obtain a student loan for my son's college due to my lousy credit. I do not see any other way but to withdraw funds from my AXA IRA rollover. Are the withdrawl rules the same as the ones for a 401k? I need $35,000, what is the total penalty plus taxes? I am 58 years old. Thanks. Ed
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    Remember, Congress created basic 401(k) hardship and loan rules, AND gave plan administrators the right to tighten those rules when setting-up their 401(k) plans. Obviously, I know nothing about the specifics of your plan. Sit down with your administrator one more time, and ask him or her to explain the issues in the way of getting a loan from your 401(k) and really listen to the answers. The "runaround" you are getting may be basic paperwork tasks that you need to complete that may seem pointless, but actually serve to document that the administrator is maintaining the company 401(k) in accordance with the law.
    0 Votes

  • 35x35
    Jul, 2009
    Tony
    my 401k plan adminitraitor has been giving my the run around. I sent in paperwork for a withdraw for tuition but they turned it down and wanted letters from the school and a other stuff. My question is can they keep my money? even if im willing to pay the penalties.If I Just tell the to send me a check can they refuse?
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    The safest course of action is to assume the IRS either knows everything about your finances or can learn anything it wants to about them after the fact. I don't see a non-penalty hardship withdrawal available for you, unless you use the funds for paying medical bills, or the other reasons allowed. See your tax planner to determine if rolling your 401(k) to an IRA gives you additional flexibility: See this Bills.com article for more information.
    0 Votes

  • 35x35
    Jun, 2009
    mike
    Hi I am 53.5 yrs old.I am laid of from work now and it looks like the company will be out of bussiness at the end of this year when I turn 54.I have an option to roll my 401k over to my ira with other institution or leave it the way it this with john hancock the current administrator.can I leave it there one more year and when I turn 55 next dec 2010 withdraw Under the 72t rule provided that I have a financial hardship which I am anticipating since my other resouces would be running out by then?or because of the compny went under 1 year earlier that I am not qualified and considered leaving the job at 54 and not 55.but since the 410k was never touched would the irs even know?I hope you understand my questions. Thanks Mike
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    You can withdraw, without penalty, funds from your 401(k) if you are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later. You wrote, "I was 55 at the time of the layoff," which places you in the no-penalty box.
    0 Votes

  • 35x35
    Jun, 2009
    Marc
    I was recently laid off my job due to workforce reduction after 11 years back in March. I have not found employment yet and due to the economic downturns I may need to use my 401K funds as O cannot wait for the Obama stimulus plan to help me in time. I was 55 at the time of the layoff. I am wondering if would qualify for the penalty free hardship clause, and if so how long does it generally take from the time you file for the withdrawl till the check reaches you?
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    It sure could Ron. I think that uncovered medical debt counts, so uncovered dental expense just might qualify - but you should seek direct counsel from a tax attorney or from your 401k administrator to confirm if dental work would qualify for penalty free distribution under the hardship rules. Good luck. bills.com
    0 Votes

  • 35x35
    Jun, 2009
    Ron
    Does dental work not covered by insurance meet the definition of medical expenses as one of the hardship reasons?
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    I don't think that will qualify, I am sorry to see.
    0 Votes

  • 35x35
    Jun, 2009
    KARI
    I am in the process of refinancing my mortgage. Would this qualify as a hardship withdrawel to pay the closing costs on a refinance?
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    You will need to speak to your plan administrator to find out whether or not your hardship qualifies for a penalty free withdrawal. You will have to be older than 59 & 1/2 years old to avoid the penalty on the withdrawal.
    0 Votes

  • 35x35
    Apr, 2009
    Carlene
    I need to cash-out my 401k. I will be 59 in June, I have estimated $700.00 in my 401k that I need to cash out due to: I lost my mom last year, My father has been diagnosed with terminal canser and has been given 6 months to live. I live in Georgia and my father lives in Mo. I have been flying out every 2-3 weeks, and I have no other cash to continue these trips. Can this be considered a hardship? If not, what amount in penalties will I have to endure?
    0 Votes

  • 35x35
    Apr, 2009
    Nithin
    If you check on the IRS's Web site, here is what I see as one of the hardship criteria:

    (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence.

    Therefore if you are having trouble with your mortgage, you may qualify for a penalty free withdrawal. Be sure you check with your plan administrators as retirement plans may, but are not required to, provide for hardship distributions.
    0 Votes

  • 35x35
    Apr, 2009
    Randy
    I am stuck in a high interest mortgage and cant get a refinence with the market i am falling behind on alot of bills. Would I be able to get a hardship withdrawal to pay off my mortgage?
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    If your withdrawal was done before you turned 59½, then you are liable to pay this penalty. if you wanted to claim a hardship withdrawal, you should have made sure that you checked if you qualify based on the IRS rules.
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    The IRS has strict requirements of what qualifies as a hardship, for more information, please see this IRS article.
    0 Votes

  • 35x35
    Mar, 2009
    Marilyn
    is there a certain length of time or a certain about of money you have to invest in your 401(k)before you can request for a hardship
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    If you withdraw from your 401k before you are 59 & 1/2 years old, then you will have to pay a 10% penalty. There are scenarios where you could claim a hardship based withdrawal, but the IRS has strict guidelines as to what qualifies for a hardship. You should speak to your plan administrator to find out if the fact that you are currently unemployed will qualify you for a penalty free hardship based withdrawal.
    0 Votes

  • 35x35
    Mar, 2009
    Debbi
    I was recently let go from my job of 13 years. I am 56 years old. If I take my 401K as a cash dispersment will I have to pay a penalty? I also took a loan last year which I will be unable to pay back. Since I am over 55 will that have a penalty? Thanks.
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    Your husband will need to talk to the plan administrator and see if he qualifies for a hardship based withdrawal. You can read more on IRS's website at: http://www.irs.gov/retirement/article/0,,id=162416,00.html
    0 Votes

  • 35x35
    Mar, 2009
    carebear
    hi, I have a question by b/f is already collecting unemployment.His 401k has 14,000 in it can we take a hard ship out on it? how does that work with unemployment we live in mass. He as a loan out on it already he owes 590$left on it.
    1 Votes

  • 35x35
    Mar, 2009
    Bill
    YOu can read more about hardship withdrawals here: http://www.irs.gov/retirement/article/0,,id=162416,00.html. You will need to speak to your plan administrator to see if you qualify for a hardship based withdrawal.
    0 Votes

  • 35x35
    Mar, 2009
    Bruce
    I suddenly became a single parent near a decade ago and a year later became guardian to a critically ill parent now passed, during which time I got deeply in debt, now struggling to hang on with mortgage payments late but current, and being the last thing still current, will I qualify for a hardship withdrawal, I ask because my largest debtor is willing to settle and this is the only resource I have left, besides bankruptcy?
    0 Votes

  • 35x35
    Apr, 2009
    Rich
    In 2007 I was terminated from my job. At that Time I was 58 years old. In Jan of 2008 I closed my 401k that I had with my employer and used the funds to live on. At this point in time I am still unemployed and will be turning 60 this month. When I filed my income tax return I used Turbo tax and said I had to pay a 10% penalty. Was this correct or could I have waived the penalty because of loosing my job and being over 55 years old?
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    You are looking at a 10% penalty right at the time of withdrawal. Let's say you withdraw $10000, you will only receive $9000 in hand. You will also have to add the $10000 to your yearly income and pay taxes on your total income.
    0 Votes

  • 35x35
    Mar, 2009
    Cyndi
    I am divorced and going back to school(University & receiving FSSA and going to another school (flying helicopters) to get the experience-they both go hand in hand). My question is: I need a large amount of money and I have it in a 401K. I am 45 yrs. old. What can I anticipate for a tax penalty for an early withdrawl? Double tax or a one time tax? I am only working P/T and can not find a person with a decent worthy credit for a loan-co-signer. I own my own house and have taken part of the 401k (court ordered) to purchase and update the necessary means with the house I am in now. I need more money to continue my education...It is not all a tuition problem.
    0 Votes

  • 35x35
    Feb, 2009
    Doreen
    I took out a 401-K hardship withdrawal, which I took 10% tax out for federal and 10% tax out for State. I am under 55 years old. Doing my taxes I owe $3600.00 because I went to the next tax bracket with the amount I withdrew. I asked my advisor before I was doing this, what I should take out and he said 10% for Fed and 10% for state would be enough. Obviously it wasn't and the reason I took a hardship withdrawal was because I couldn't pay my mortgage and now I have to pay the IRS. Is there anything I can do to rectify this situation?
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    Doreen, the 10% that you paid is only the penalty for early withdrawal. What you are doing now is paying your income taxes on the withdrawal (adding the amount withdrawn to your income for the year). I doubt that you will be able to fix this as the transaction has already taken place.
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    Yes, as you are above the age of 59.5 you will not have to pay the 10% penalty for early withdrawal.
    0 Votes

  • 35x35
    Feb, 2009
    Mike
    My job was eliminated 4 months ago... the week of my 60th birthday. At the time of my termination, I was repaying a 401(K) loan that had helped me purchase my home. That loan still has a balance of about $1500. Since I am unemployed, I cannot repay it. My questions: Since I am now 60 abd tge loan is not yet in default, am I right in assuming it will be treated as taxable income without the 10% penalty? Can I withdraw all or part of the remaining balance to help while I'm unemployed?
    0 Votes

  • 35x35
    Jan, 2009
    SCOTTY
    I was recently laid off my job due to workforce reduction. I have not found employment yet due to the tough times now and need to use 401K funds from previous employment. I'm not yet 55 and wonder if I would qualify for penalty free hardship.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    You will need to discuss that with your plan administrator. You can read more about hardship rules at: http://www.irs.gov/retirement/article/0,,id=162416,00.html
    0 Votes

  • 35x35
    Jan, 2009
    Frank
    Thank you for your response. My "retirement account" was NOT the same as my 401K account. My employer has already taken away my retirement account. I don't have the money to pay for a lawyer, unless I take the money from the 401K. In that case, it is too late to save the money that I have worked to put in this account. I know the trend to make the tax law unaviable for most people is certaintly not your fault, and I'm not blaming you. However, we really need to get some change in our laws to protect people (not the people who have the money to have a lawyer).
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    That certainly does not sound legal, but if I were you I would seek counsel from a local attorney to review your 401k plan, your disability income and your issues with your former employer. Good luck.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    The best way to find out, for sure, if you qualify for penalty-free distribution will be to consult with a tax attorney or a tax professional (a CPA, for example). I don’t really know enough about your situation to tell you whether or not your disability would exempt you from early withdrawal penalties. Even if you are not penalized, remember that you will likely still be required to pay taxes on the money you withdraw, which is usually around 20%. If you are allowed to make a penalty-free withdrawal, and are later able to start a business, I cannot imagine that the IRS would ask you to pay the penalty after-the-fact. Generally speaking, the IRS will look at your situation at the time of the withdrawal to make its determination as to whether or not the penalties will be incurred; future changes to your disability status should not cause a problem. Since I cannot provide you with tax advice specific to your circumstances, I strongly encourage you to consult with a tax professional about this situation to make sure that this withdrawal will not cause you problems down the road. As for your former employer’s legal ability to require you to repay your disability benefits, this depends primarily on the type of disability benefits you are receiving and the contract between you, your employer, and the disability insurance provider. Federal law strictly regulates withdrawals from 401k accounts, so even if you are contractually required to repay your disability benefits, I doubt that your former employer could simply dip into your 401k fund to repay the insurer. Again, I do not know the details of your situation and cannot provide you with legal advice, so I strongly encourage you to consult with an attorney licensed in your state.
    0 Votes

  • 35x35
    Jan, 2009
    Frank
    I'm not asking what they meant. They were explicit that their intention is to take away ALL of the benefits that I have received for the past years, if I am able to get an income to survive on. What I'm asking is if it is legal for them to do this. If not, is there a resource that I can rely on to protect myself. From my experience with the "plan administrator", they will NOT "ask" my permission to take money from me. And I am asking if my 401K is "income" for the purpose of taking away this "benefit", if I were to take this money to live on, while I get a business up and running. And, returning to my first question, your blog says "you may qualify" to take a penalty-free distribution if "you become totally disabled". Of course the life-threatening conditions that I'm living through, will not disappear just because I don't have the money to pay for life. So, I guess there are two parts to this question. First, I'm asking if there is a way to get a definite answer on if a person qualifies for this penalty-free status? And second, will the IRS renege on this, once and hopefully when I have enough money to survive on? Is it possible to get this money at one time? Obviously, I don't want to lose any more money than I have to, after losing my retirement and having to pay the expense of getting fired.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    You will pay the penalty for the 401k withdrawal regardless of your current income situation. I am guessing that, what your employer means is that if you earn any income while you are disabled, you should not be getting any disabilty benefits from them as you are earning an income elsewhere, but if you have no income right now, they cannot ask you for the money back. But, they can stop your disability benefits once you start earning through your new business.
    1 Votes

  • 35x35
    Jan, 2009
    Frank
    I was fired from my job and was forced (by my employer) to get a disability designation. I can't live on this tiny disability benefit, since they took away my retirement from me forever. I was hoping to start a business, but I don't have the money to live on unless I take the money from my 401K. If I get any income from this business eventually, will I have to pay a penalty at that time? There is not a huge amount in the 401K, so can I take all of the money at one time? My employers also told me that I would have to pay back ALL of the disability benefits that I have received so far, if I recieved any income. Is this true? Is this income? I'm 54.
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    Please talk to your plan administrator about getting a loan against your 401k savings, it can be done quite easily.
    0 Votes

  • 35x35
    Dec, 2008
    bradley
    i have 1 401[k]loan already but owe irs and they garnising my wages and need loan before i loose everything
    2 Votes

  • 35x35
    Feb, 2008
    Nathan
    Windy, please contact your plan administrator to find out if your divorce qualifies as a hardship withdrawal. The rules are pretty rigid, so if the divorce does not qualify, I would advice against pulling those funds out because the penalty will be very steep.
    0 Votes

  • 35x35
    Feb, 2008
    windy
    I am going thru a devoice.I want to go thru it the cheapest way possible. So I trying to have all ready to offer to my husband when we go to file.I wanted to withdraw from my plan to pay him.Please tell me what is possible. Thanks Windy
    9 Votes

  • 35x35
    Jan, 2008
    Nate
    You will need to contact your plan administrator. The plan administrator will then contact the IRS with the details of your case to see if it does indeed qualify for the hardship criteria.
    0 Votes

  • 35x35
    Jan, 2008
    Bill
    can you take hardship for a fire the destroy home/primary residence
    0 Votes

  • 35x35
    Mar, 2008
    Kenneth
    The company I worked for went out of business while I was out for disability. I am still disabled and awaiting a hearing from the Soc. Sec Adm. I have received a check from my former 401k,how much penalty and taxes will I have to pay if I declare a hardship withdrawal? The check is $26,000 and I am 58 years old. I am financially strapped at this time and need the money to pay my bills and my medical needs.
    9 Votes

  • 35x35
    Mar, 2008
    Bill
    There are only a few instances where the IRS would qualify a hardship based withdrawal. You will need to speak to your plan administrator from before and discuss your situation in detail. Your plan administrator would then see whether you qualify or not. In the event that you do not qualify, the penalty for early withdrawal (before the age of 59 1/2)is an additional 10% on top of the regular income tax that you would pay.
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    You will have to consult with your plan administrator to find out whether or not what you have explained in your question, qualifies as a valid reason for a hardship based withdrawal. The IRS has strict rules governing it and only a plan administrator can help in this regard.
    0 Votes

  • 35x35
    Apr, 2008
    Shedrick
    I have just purchased my first home which is now my primary home of residence. I had an inspection done on the house and what was wrong was the following. First water heater floor was weak and bowed, there is grout cracks in the mastere shower walls and also the second bathroom. The back door is not closing shut due to the frame is rotted and the front door frame look like someone may have kicked the door in. Also the hot water heater TPR Line & Flue is not connected, I was told by the inspector that this is hazardous and require immediate attention. I have gotten a estimate on the repairs and my insurance stated that this is not covered in the insurance. My question to you is I have offical documents supporting all of this, can I take out an Hardship withrawl from my 401K for these repairs?
    0 Votes