Quote:
| Originally Posted by Denise Peltier What Are All The Irs Criteria For A Hardship Withdrawal From A
401 (k) Plan. |
The IRS defines the following as hardships with respect to allowable 401(k) hardship withdrawals:
1. Un-reimbursed medical expenses for you, your spouse, or dependents.
2. Purchase of an employee's principal residence.
3. Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
4. Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
5. Funeral expenses
6. Repair of a primary residence.
Note that even though a withdrawal is defined as “hardship,” this does not necessarily mean that it is exempt from the 10% early withdrawal penalty.
If you take a withdrawal and are under 59-1/2 years of age, in addition to income tax you will also have to pay an additional 10% early-withdrawal penalty. This is not automatically withheld - you have to pay it with your tax return in April.
The exceptions to the 10% penalty rule for people under 59-1/2 years of age include withdrawals that are:
1. Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service) - this is known as a section 72(t) withdrawal.
2- Made because you are totally and permanently disabled (he or she cannot engage in any substantial gainful activity because of a physical or mental condition, and a physician determines that the condition has lasted or can be expected to last at least a year or can lead to death).
3- Made on or after the death of the plan participant or contract holder.
4- From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55.
5- From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order.
6- From a qualified retirement plan to the extent you have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year.
7- From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election.
8- From an employee stock ownership plan for dividends on employer securities held by the plan.
9- From a qualified retirement plan due to an IRS levy of the plan.
Other Exceptions:
The following exceptions also apply:
•Distributions incorrectly indicated as an early distribution by code 1, J or S in box 7 of Form 1099-R.
•Distributions from a section 457 plan, which are not from a rollover from a qualified retirement plan.
•Distribution from a plan maintained from an employer if:
1.You separated from service by March 1, 1986
2.As of March 1, 1986, your entire interest was in pay status under a written election that provides a specific schedule for distribution of your interest; and
3.The distribution is actually being made under the written election.
•Distributions that are dividends paid with respect to stock described in section 404(k)
•Distributions from annuity contracts to the extent that the distributions are allocable to the investment in the contract before august 14, 1982.
Note that these exceptions are not the same as the exceptions for early withdrawals from an IRA – for example, there are no exceptions for first-time home buyers, payments for higher education, or heath insurance premiums for unemployed persons.
Linear Mode
