Subscribe Feed (RSS)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means that you are less than 59 and a half years), the IRS will impose a hefty penalty of 10% on the amount that is withdrawn.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.
Why should anyone that has a 401k be charged a penalty if they take out their money? I mean does the Federal Goverment give us the money back when the Stock market goes up and down and we as Americans lose money? No, the are not held acountable so why should we. My wife and I have a outstanding Medical Bill and a couple of other bills that total $9,000.00 and we just wanted to pay them off using our 401K it’s our money but, yet the Goverment tells us what we can and can’t do with it, What’s up with that? It’s not like we were going to empty the whole thing but, with the way the Goverment is using my Money and telling me what I can and can’t do with my Money makes me think what is really going on in America?
That’s how a 401-k works. You presumably knew going in that it’s a _retirement_ account. The 10% penalty is there to discourage you from raiding it before you retire. In your case, if those medical expenses eat a big enough part of your annual income, you can get the penalty waived. You’ll still pay income tax on the withdrawal, because the money went into the account before it was taxed. The big, bad government is NOT using your 401-k money (it’s a private account, so your brokerage may be using some of it), nor is it telling you what you can or can’t do with your money. However, the government is discouraging you from spending your retirement nest-egg before you retire. You opened a private account with certain well-known rules that allow you to put aside retirement money pre-tax. It’s a contract. You want out of the contract, you pay the penalty. That is all.