Many Americans are still feeling the pressure from the economy and a lot of people have turned to their retirement savings as an emergency.\u00a0 While it isn\u2019t the first place you should turn to if you can\u2019t make ends meet, it\u2019s sometimes one of the only options left for struggling families.<\/p>\n
Before you tap into your 401(k) or 403(b), understand that there are certain provisions that are extended to you if you are going ![\"hardship](\"https:\/\/wp-media.patheos.com\/blogs\/sites\/618\/2012\/03\/hardship-withdrawal.jpg\" "\\"hardship")
through a hardship.\u00a0 The IRS outlines qualified retirement hardship distributions that need to be met before you can take a hardship distribution.\u00a0 Generally, the money in your 401(k) or 403(b) is untouchable unless you reach age 59 \u00bd or terminate employment, but the hardship provision allows early access if it\u2019s a qualified expense.<\/p>\n
Note: Your employer does not have to provide hardship provisions within the plan, so be sure to check with your HR department to see if a 401(k) hardship is available.<\/em><\/p>\n You may qualify for a hardship if you need to cover certain expenses (outlined below.\u00a0 But first, the IRS requires that you satisfy all other sources first, meaning that you have no other funds or means available to meet the need.<\/p>\n According to the IRS 401(k) Resource Guide, the following needs would qualify as a hardship distribution:<\/p>\n The hardship distribution cannot exceed your documented need, so you won\u2019t be able to take out \u2018extra\u2019 to cover anything that you want.\u00a0 Your qualified retirement plan will most likely require that you show proof of need and will limit your distribution to satisfy that need and no more.<\/p>\n Usually, early withdrawals from a qualified retirement plan will result in a 10% penalty if you are under age 59 \u00bd.\u00a0 You must also include the distribution in your taxable income for the year.<\/p>\n There are, however, exceptions to the 10% penalty, which are listed below.<\/p>\n From IRS Publication 17:<\/strong><\/p>\n You may not have to pay the 10% additional tax if you are in one of the following situations.<\/p>\n Ask your employer about alternatives to hardship distributions like a loan from your 401k.\u00a0 Many retirement plans allow you to borrow from your retirement plan and pay it back over a 5-year period. Generally, you can borrow up to half the value of your account to a maximum of $50,000; whichever is the lesser of the two.<\/p>\n The IRS answer: Not Exactly. <\/em>\u00a0With IRAs, you generally have access to your money without showing need for a hardship distribution.\u00a0 The whole point of a hardship distribution on a 401(k) or 403(b) is to give you access to your funds if you are 59 \u00bd or younger and meet certain qualifiers. \u00a0401(k) and 403(b) plans are very restrictive in terms of early distributions, but IRAs are much more lenient.\u00a0 In fact, you can usually take an early withdrawal from your IRA without much of a hassle \u2013 though it will most likely be considered as taxable income for the year.\u00a0 If your distribution is for a qualified expense like a first time home purchase or higher education expenses, you may not be subject to the early distribution tax of 10%.<\/p>\n Always check with your employer, tax professional, or financial planner to look for the best solution to your hardship.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":" Many Americans are still feeling the pressure from the economy and a lot of people have turned to their retirement savings as an emergency.\u00a0 While it isn\u2019t the first place you should turn to if you can\u2019t make ends meet, it\u2019s sometimes one of the only options left for struggling families. Before you tap into […]<\/p>\n","protected":false},"author":2551,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-1813","post","type-post","status-publish","format-standard","hentry","category-retirement"],"yoast_head":"\nWho Qualifies for a Hardship Withdrawal<\/h2>\n
Qualified Expenses for 401k Hardship Distributions<\/h2>\n
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How Much Can I Receive as a Hardship Distribution?<\/h2>\n
Does a Hardship Distribution Have an IRS Penalty?<\/h2>\n
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Hardship Alternatives: Loan from your 401(k)<\/h2>\n
Do Hardship IRA Withdrawals Exist?<\/h2>\n