1. Home
  2. Knowledge Base
  3. Retirement Planning
  4. How to request a 401(k) hardship withdrawal

Hardship withdrawals are allowed by law but your employer is not required to provide this option in your plan. The cost of administering such a program can be prohibitive for many small companies.

Your summary plan description (SPD) will state whether or not your employer allows withdrawals in your plan. The IRS code that governs 401(k) plans provides for hardship withdrawals only if:

  1. the withdrawal is due to an immediate and heavy financial need;
  2. the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need);
  3. the withdrawal must not exceed the amount needed by you;
  4. you must have first obtained all distribution or nontaxable loans available under the 401k plan; and
  5. you can’t contribute to the 401(k) plan for 6 months following the withdrawal.

The following four items are considered by the IRS as acceptable reasons for a hardship withdrawal:

  • Un-reimbursed medical expenses for you, your spouse, or dependents.
  • Purchase of an employee’s principal residence.
  • Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
  • Payments are necessary to prevent the eviction of you from your home, or foreclosure on the mortgage of your principal residence.

Hardship withdrawals are subject to income tax, and if you are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.

Was this article helpful?

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Find Products and Apps