If you suffer a financial hardship, you might be able to withdraw money from your 401(k) plan
before you retire. Some 401(k) plans may allow a hardship distribution to pay certain expenses
for you, your spouse, your dependent or your primary beneficiary, for example:
- medical expenses,
- funeral expenses, or
- tuition and related educational expenses.
However, you should know the following consequences before taking a hardship distribution:
- The amount of the hardship distribution will permanently reduce the amount you will have in the plan when you retire.
- You must pay income tax on any previously untaxed amount of the hardship distribution.
- You may also have to pay an additional 10% tax, unless you are 59½ or older, or qualify for another exception.
- You may not be able to contribute to the plan for six months after you receive the hardship distribution.
Remember, a 401(k) plan is designed to help you save money for your retirement while you’re
working. So, consider the consequences before dipping into your retirement savings.
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For immediate assistance with retirement distributions, or another tax matter, contact us today at 1-714-382-6780 for a FREE and CONFIDENTIAL consultation with our CPAs and former IRS Agents.
We look forward to serving you.
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