The rules of 401k hardship withdrawals
Thinking about tapping your 401K to get through tough times? You may qualify for a hardship withdrawal if you meet certain conditions. And if you do qualify, you should expect to incur a substantial financial penalty PLUS a 10 percent early withdrawal penalty if you’re younger than 59 1/2.
These are the conditions that you or someone in your immediate family should meet.
Have outstanding and un-reimbursable medical expenses (excluding cosmetic surgery). You’ll need to supply a copy of your explanation of benefits (EOB) from your insurance company showing what part of your medical expenses are covered and which are not.
Prevention of eviction or foreclosure (on your primary residence). If you are facing eviction or foreclosure you can seek a hardship withdrawal to cover the outstanding expenses necessary to bring your account current.
Post-secondary education expenses. Withdrawal funds would be limited to tuition for classes at an accredited university.
Purchase of primary residence. Withdrawal would be for the amount covering your down payment, closing costs, and other associated fees.
Funeral expenses. Funds would cover both burial and funeral expenses however you should be prepared to provide documentation to support your claim.
Repair for damage caused by natural disaster to your principal residence. Think major damage here, such as your home being impacted by a mud slide, fire, hurricane, etc.
There are two early withdrawal methods. The first is one is called proof of need. This is where you would be required to reveal very personal details of your financial situation to your employer. The only thing appealing about this option is that you can begin making 401K contributions as soon as you receive your next pay check.
The second method is called self-certification. You’d just need to fill out a 401K hardship withdrawal form however the downside is that you would not be allowed to restart your 401K contributions until after six months.
Last words: Remember your 401K savings plan is income for your retirement income. If you need to make early withdrawals do so ONLY you have exhausted all other financial resources.
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Tags: 401k, 401k withdrawl
This entry was posted on Wednesday, December 10, 2008 at 8:32 am and is filed under 401k. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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