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What are the conditions for 401K hardship withdrawal rules

When you have financial difficulties, you may want to use the 401K accounts. For this specific purpose, the 401K hardship withdrawal rules help you to get access to your funds quite easily. Be careful about the money that you take away from the account as it can have impact on you golden years. This should actually be the last source of receiving your cash. The hardship withdrawal doesn’t function like a normal loan account. The Congress has outlined certain which criteria under which the money lying in the accounts can be accessed. The situations are

  • When the medical expenses incurred for your spouse, dependents and self are not reimbursed.
  • When there is a purchase of an employee’s principal residence.
  • When there are payments that are related to tuition fees and other related educational costs for self or your spouse or dependents or even children (that are no longer dependents) for the next 12 calendar months.
  • Payments that may be necessary to prevent foreclosure or eviction form your house.
  • Funeral expenses.
  • Expenses incurred for the repairs and damages of the principal employees residence.

Even if these criteria are met and to ensure that there are no early withdrawals (this means that you are less than 59 and a half years), the IRS will impose a hefty penalty of 10% on the amount that is withdrawn. There are certain conditions in which you may qualify, for a penalty free withdrawal. These exemptions are

  • Total disability.
  • You have incurred debt for the medical expenses and these are in excess of 7.5% of the gross annual income that you have.
  • The court has directed you to pay maintenance for your wife, children and dependents in case of a divorce or separation.
  • You are currently unemployed when you have turned 55 or later or have no means of income.

In case you want to use the 401K hardship withdrawal rules money for a fancy Caribbean cruise or to buy the latest SUV, give it a hard thought as the withdrawals are meant for emergencies only and not luxuries.