[ksodini]

My husband died 2 years ago at the age of 61. He was disabled at the time. Since his death I have been taking money out of his 401k each month to make the house payments and help with other bills, insurance, taxes, ets. I work full time but make less then $25,000. Does this qualify for a hardship withdrawl? Any other way to avoid the penalty?

[ebaines]

First, how old are you - are you over 59-1/2?

When you inherited the IRA you had three options on how to treat it:

1. Keep the IRA as an "inherited IRA" account. If you did this, there are no early withdrawal penalties; only regular income tax that you have to pay. If you anticiapted having to make withdrawals prior to age 59-1/2 this would have been a good choice.

2. Roll the inherited account into your own personal IRA. If you did this then any withdrawals you make are subject to the early withdrawal penalties (if you are under age 59-1/2) as well as income taxes. I wonder if this option is what actually happened to your husband's account?

3. Take the entire amount as one lump sum distribution. If you did this there are no early withdrawal penalties, but you woiuld have had to pay income axes on the full amount.

If you did option 2, so that early withdrawals are penalized, and are under agr 59-1/2 you can avoid the 10% early withdrawal penalty only if the money is used for one of the following:

• Distributions 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 - this is known as a section 72(t) withdrawal
• Distributions due to total and permanent disability.
• Distributions due to death (you are the beneficiary of a deceased plan participant).
• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
• You are unemployed and the distribution is for health insurance premiums.
• Distributions made for qualified higher education expenses for you, your spouse, or child.
• Distributions to buy, build, or rebuild a first home, up to $10K.
• Distribution due to an IRS levy of the qualified plan.
• Distributions to reservists while serving on active duty for at least 180 days.