Landmark Tax Group

401(k) Hardship Distributions

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.

See: Compare How Traditional and Roth IRAs Help Save Money

See: Taxable and Non-Taxable Income

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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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