401(k) plan hardship distributions - consider the consequences

Many 401(k) plans allow you to withdraw money before you actually retire to pay for certain events that cause you a financial hardship. For example, some 401(k) plans may allow a hardship distribution to pay for your, your spouse’s, your dependents’ or your primary plan beneficiary’s:

• medical expenses,
• funeral expenses, or
• tuition and related educational expenses.

However, you should know these consequences before taking a hardship distribution:

• The amount of the hardship distribution will permanently reduce the amount you’ll have in the plan at retirement.
• You must pay income tax on any previously untaxed money you receive as a hardship distribution.
• You may also have to pay an additional 10% tax, unless you're age 59½ or older or qualify for another exception.
• You may not be able to contribute to your account for six months after you receive the hardship distribution.

Remember, a 401(k) plan is designed to help you save money for retirement. Consider the consequences before dipping into your retirement savings.

Related

• Retirement Topics - Hardship Distributions
• FAQs: Hardship Distributions
• Publication 575, Pension and Annuity Income