401K Hardship Withdrawal Rules

While the 401k Hardship Withdrawal rules allow you to take out money early not every plan may have the option to do so. Every plan is different so taking a hardship withdrawal from your 401k plan may work a little differently then someone else’s.

The first step to taking a 401k hardship withdraw is to make sure that your company actually has one available. You can get the information you need or get pointed in the right direction by visiting your company’s human resources department.

Qualifying

Before you take money out you have to qualify first. This means that you have to be in a serious hardship with no other assets to help you. In addition the amount you are withdrawing cannot exceed the amount that you need in order to pay for your hardship.

Some of the examples of acceptable hardships are.

1. Medical expenses that will not be reimbursed and exceed 7.5% of your income
2. Buying your first house
3. College tuition or other higher education expenses for you or your immediate family.
4. To pay rent/mortgage to avoid being evicted
5. Funeral expenses
6. Making Certain housing repairs
7. Death, you benefituaries can withdraw money
8. Permanently Disabled and unable to work

Depending on your specific hardship and your age you may or may not have to pay the 10% early withdrawal penalty, so just be prepared. Even if you are exempt from paying this you will still have to pay taxes on any money you take out.

You may take out a hardship withdraw for your spouse or dependence, but once you take a 401k hardship withdraw you cannot deposit any more money into the plan for 6 months.

401k Hardship Withdrawal Letter

If you are absolutely sure that you have no other means of making your payments then you are going to need to send out a 401k hardship letter.

This is basically a letter saying what your hardship is, how much you want to withdraw, and that you know the risks and taxes involved. There are several templates around the internet to use, and you can do a quick search to find one.

In addition to the letter you are going to have to attach proof that you do in fact have a hardship and that you cannot pay for it. What exactly is required to prove this depends on your specific broker or bank so make sure you find out that information out as well.

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