A hardship withdrawal from your 401(k) may be available for certain circumstances. Unfortunately, it is an expensive way to tap your own money. Taxes may be due on the money withdrawn and if you’re under age 59½, there may be a 10 percent penalty as well. Plus, unlike taking a loan from your 401(k), you can’t repay a hardship withdrawal.
What’s not included:
Things like vacations, boats or new televisions are not considered heavy and immediate financial needs.
What is included:
According to the Internal Revenue Service, these situations generally qualify for hardship withdrawals:
- Unreimbursed medical bills.
- Buying a home.
- Paying college expenses—or other college-level education costs.
- Funeral expenses.
- Payments necessary to prevent eviction from or foreclosure on your home.
- Repairing damage to a home located in a federally declared disaster area.
Other options to consider:
- A 401(k) loan.
- Think about a distribution from a traditional or Roth IRA instead.
Before you take a hardship withdrawal from your 401(k), evaluate all your options carefully. If you really have to do it, take steps to help reduce the damage to your retirement savings and make a plan to get your finances back on track.