Do you need to make a 401k hardship withdrawal? If your answer is yes, then you should definitely read on. Whether you need the extra money to jumpstart your real estate goals or to help with medical expenses, know that there is a way for you to get help from your 401k plan. Of course, there are certain guidelines that you need to look into, so make sure you know all the important facts about this matter. Keep in mind that it would still be best to keep up with the 401k limit each year even if you are qualified for a loan, since this ensures continuous investment growth.
If you try to search online, you will come across statistics and pieces of info stating that many 401k plan owners have taken this route. While you may have done all that you can in order to stay financially stable, life may bring unforeseen circumstances. Due to this, a 401k hardship withdrawal may just be your only solution. Prior to an early withdrawal, you should first consider other means such as your life insurance, etc. In the event that you won’t have any other source to turn to, know that you will incur tax penalties when you take money from your 401k savings.
Because 401k plans are offered to employed individuals, be sure to check with your company’s Human Resources Department whether or not you can take advantage of this type of loan. Employers who offer this said program have strict and detailed rules to adhere to. Just as you would try your best to meet the 401k limit each year, you should also ensure that all guidelines pertaining to a hardship withdrawal will be followed. Based on the IRS code, these said withdrawals should only be provided if:
• The withdrawal is due to an immediate and heavy financial need;
• The withdrawal must be necessary to satisfy that need (i.e. you have no other funds or ways to meet the need);
• The withdrawal must not exceed the amount needed by you;
• You must have first obtained all distribution or nontaxable loans available under the 401k plan;
• You can’t contribute to the 401k plan for six months following the withdrawal.
You will also be able to get a 401k hardship withdrawal if you need to use the funds to repair or buy a principal residence, pay for college tuition as well as other educational related costs, make payments in order to prevent eviction from your home or foreclosure, and pay for funeral expenses.
It is important to take note that by taking this route, your withdrawal will be subject to tax deductions if you are below 59 ½ years of age.