Originally Posted by JKennell
If you are no longer an active employee at the company where the 401(k) is located there is no limit on taking early withdrawals - as long as there is money in the account you can take as much or as little and as at many different times as you like. If you are still an active employee then whether you may take an early distribution depends on the specifics of the rules for your plan, but as a minimum all plans must allow withdrawals for the following "hardship" purposes:
1. Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
2. Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
3. Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents;
4. Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;
5. Funeral expenses; or
6. Certain expenses relating to the repair of damage to the employee’s principal residence.
So paying off taxes to prevent eviction or foreclosure should indeed qualify. Talk to your plan administrator to find out how to process the withdrawal. But first please consider this: in general for active employees it's a much better deal to take a loan from the plan rather than a hardship withdrawal as there are no taxes or penalties to pay. Have you considered this?
In any case for early withdrawals you will pay regular income tax (federal and state as appropriate where you live) plus the 10% early withdrawal penalty. The exceptions to having to pay the early withdrawal penalty do not include paying off property taxes - the exceptions are:
• From a qualified retirement plan (other than an IRA) after your separation from service in or after the calendar year in which you reached age 55 (age 50 for qualified public safety employees). Code 2.
• Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.) This is known as a section 72(t) withdrawal). Code 2.
• Distributions due to total and permanent disability. Code 3.
• Distributions due to death (you are the beneficiary of a deceased plan participant). – see IRS Pub 575 for special rules regarding distributions after a participant’s death. Code 4.
• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income – up to the amount allowed as a medical expense deduction. Code 1 - you will have to file form 5329.
• Distributions from a qualified retirement plan to an alternate payee under a qualified domestic relations order (does not apply to IRAs). Code 1 - you will have to file form 5329.
• Distributions due to an IRS levy of the qualified plan. Distribution code 2.
• To reduce excess employee or matching employer contributions, or to reduce excessive elective deferrals.
• Distributions to reservists while serving on active duty for at least 180 days. Code 1 – you will have to file form 5329.
Consequently if you take the withdrawal you will have to pay the 10% penalty.