Investment & Financial Articles
Title: 401k Hardship Withdrawals - An Overview
Author: Rick Meigs, Publisher, 401khelpcenter.com
Article:
Like loans, hardship withdrawals are allowed by law, but your
employer is not required to provide for them in your plan.
Again, most companies do, but some don't. The cost of
administering such a program can be prohibitive for many small
companies. Check with your Human Resources department if you're
not sure if your plan allows hardship withdrawal. Like loans,
your employer must adhere to some very strict and detailed
guidelines.
The IRS code that governs 401k plans provides for hardship
withdrawals only if: (1) the withdrawal is due to an immediate
and heavy financial need; (2) the withdrawal must be necessary
to satisfy that need (i.e. you have no other funds or way to
meet the need); (3) the withdrawal must not exceed the amount
needed by you; (4) you must have first obtained all distribution
or nontaxable loans available under the 401k plan; and (5) you
can't contribute to the 401k plan for six months following the
withdrawal.
The following four items are considered by the IRS as acceptable
reasons for a hardship withdrawal:
* Un-reimbursed medical expenses for you, your spouse, or
dependents. * Purchase of an employee's principal residence. *
Payment of college tuition and related educational costs such as
room and board for the next 12 months for you, your spouse,
dependents, or children who are no longer dependents. * Payments
necessary to prevent eviction of you from your home, or
foreclosure on the mortgage of your principal residence.
Hardship withdrawals are subject to income tax and, if your are
not at least 59½ years of age, the 10% withdrawal penalty. You
do not have to pay the withdrawal amount back.
For more information on this and other 401k issues, go to
www.401khelpcenter.com.
About the author:
Mr. Meigs is the founder and President of 401khelpcenter.com,
LLC a three-year-old Internet Company based in Portland, Oregon.
It is a leading provider of information, opinion, analysis,
news, rules, and other 401k resources for plan sponsors, small
businesses, and employees.
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