Purchase of an employee's principal residence.Unreimbursed medical expenses for you, your spouse, or dependents.The IRS allows hardship withdrawals for only the following reasons: And, your plan is not required to approve your request even if you have an IRS-approved reason. The legally permissible reasons for taking a hardship withdrawal are very limited. Before beginning the process, you might consider discussing your financial situation and options with a financial planner. Financial planners consistently stress that your 401k account does not work very well as a savings account or emergency fund - the money is hard to get, the process is time consuming, and the damage you can do to your retirement savings account can take many years to repair.īefore you begin: You will be in for a lot of paperwork if you decide to take a hardship withdrawal. If you are exploring the idea of using the hardship withdrawal provision, make sure that you aren't making the decision lightly. Other reasons cited were medical emergency (28 percent), bills or daily expenses (21 percent), and education (7 percent). And, while you can avoid penalties and taxes with loans (with a hardship withdrawal you can't), they must be paid back.įorty-eight percent of the people who have taken a hardship withdrawal have done so to buy a home, according to a study conducted by the Investment Company Institute (ICI) in the spring of 2000.
It should be noted that, if your plan permits, you can take a loan from your 401k. But, there are only four IRS-approved reasons for making a hardship withdrawal: college tuition for yourself or a dependent, provided it's due within the next 12 months a down payment on a primary residence unreimbursed medical expenses for you or your dependents or to prevent foreclosure or eviction from your home. Reasons that people apply for hardship withdrawals vary from the whimsical, such as a trip to the Caribbean (which won't be approved), to the agonizing, such as paying for a child's leukemia treatment (which probably will). "The financial hardship provision allows withdrawals only for immediate, pressing need," said Stone. You'll need to prove that you really need the money right now, says Jim Stone, a Chartered Financial Consultant (ChFC) and an instructor at the College for Financial Planning. To get at the money, however, you'll have to weave your way through a veritable obstacle course of regulations. So, can you access that 401k money to cover these sorts of hardships? Suddenly, the pie-in-the-sky picture of retirement seems meaningless in the face of your current problems. Then the doctor bill comes, or the tuition bill, or a late notice from your mortgage company. After contributing for several years, it's becoming easier to imagine all of the things that you'll be able to do with that money when you retire. It can be pretty satisfying to get your 401k statement in the mail and see the good-sized balance that you've built.
Thank you for taking the time to consider my request.Emergency Access to Your 401k: Hardship Withdrawals If you have any questions, you can reach me at Email Address or at Phone Number. I have included copies of my wife’s medical reports. I have tried to get a loan to cover the expenses, but the interest payments were too much of a burden for our income even when my wife is able to work.
If you grant my request, we will have no trouble continuing our mortgage payments and not fall behind, which could result in foreclosure. My health insurance covered the cost of the surgery, but she cannot return to work for three months, during which time our income will be reduced. My wife required emergency surgery for a tumor in her stomach, which turned out to be benign. I have completed and enclosed the required forms for this request. The account currently contains thirty-five thousand dollars ($35,000). This letter is a formal request to withdraw ten thousand dollars ($10,000) from my 401k account because of unexpected medical expenses for my wife. RE: Request for a withdrawal from 401k account number NUMBER