![]() ![]() For example, some may not allow for tuition expenses, and others do. Keep in mind that each retirement plan varies, and your employer is not required to make hardship withdrawals an option for your plan. Certain expenses to repair damage to your principal residence 2Īlso, we should mention here that the SECURE Act, which was passed in December of 2019, gave new parents the option to withdraw up to $5,000 penalty-free to pay for birth or adoption expenses for a new child.Payments necessary to prevent eviction or foreclosure (of your primary residence).Tuition and related educational fees and expenses.Costs relating to the purchase of a principal residence.These six circumstances qualify for a hardship withdrawal: And by the way, the IRS makes sure to throw this qualifier in there: “Expenses for the purchase of a boat or television would generally not qualify for a hardship distribution.” 1 Hold up. What About 401k Hardship Withdrawals?Ī hardship withdrawal is a special circumstance when the IRS allows you to take money out of your 401(k) without the 10% withdrawal fee (although you’ll still have to pay income taxes).Īccording to the IRS, a hardship withdrawal applies to people in an “immediate or heavy need.” These circumstances apply to you, your spouse or your dependents. It’s not supposed to pay for emergencies or be your college tuition fund for little Suzy. Here’s the reality: Your 401(k) is a retirement account that’s designed for long-term wealth building. That $20,000 would eventually turn into more than $240,000, and you’d never even have to lift a finger! Here’s what we mean: Let’s say you left that $20,000 alone for 25 years and it averaged a 10% annual growth rate in a good mutual fund. You’re also robbing from your future self. Market chaos, inflation, your future-work with a pro to navigate this stuff.īut taxes and penalties are just the beginning of the money you’ve lost. That’s outrageous! There are better ways to pay the bills. In the end, you’re only left with $13,600 of your original $20,000. You’re in the 22% tax bracket, which means that Uncle Sam pockets $4,400 of your 401(k) money for income taxes and $2,000 for that 10% penalty. Let’s say you make $60,000 a year and you withdraw $20,000 from your 401(k) to pay for medical bills. If you take money out of your traditional 401(k) before age 59 1/2, you’ll get hit with two big bills when you file your next tax return: If you’re scared right now about emergency expenses or paying down debt, you might be tempted to take money from your 401(k), especially considering the new loopholes in the CARES Act that Congress recently passed.īut is a 401(k) withdrawal a good idea? Let’s jump into the details to find out. The coronavirus pandemic is the biggest financial crisis that a lot Americans have ever seen. He doesn’t even knock when he shows up-he just kicks down the door! You’ve heard of Murphy’s Law, right? Anything that can go wrong will go wrong. And they’re great at draining us of our money-especially if we’re not prepared. Life has a way of throwing curve balls at us. ![]()
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