[vicki3979]

I am 61 and have a home I inherited and the foundation needs repaired. I want to draw from my 401K to repair it. It is a rental property and because of the decline in the property market there is no equity from which to draw. Is this reason enough to draw from a 401K? Would I have to pay a penalty?

[ebaines]

No penalty, since you are over 59-1/2 years of age. You will have to pay income taxes on the withdrawal, of course. I assume you are retired from the company where the 401(k) is located - right? Because some companies don't allow active employees to make withdrawals, unless the reason for it it falls into one of the "hardship" categories, and this one doesn't.

As to whether this is a good use of your retirement funds - it's impossible for us to say, given that we know nothing about your personal sitiuation. It may well be justified if making the repairs allows you to rent the property and get some income from it.

[vicki3979]

Thank you so much for your help on this. I am still employed but do not have the financial means to get this repair done without using 401K money. Because the market is in such poor condition, a home equity loan would not be feasible either. Why would this not be considered a hardship? I also need some work done on my primary residence and was hoping to accomplish that work as well with the withdrawal (furnace and windows). What IS considered a hardship? Again, thank you so much.

[ebaines]

...What IS considered a hardship?

First, remember that each 401(k) plan has its own rules, so it's best to ask at work whether you are eligible for a withdrawal. Some companies allow anyone over 59-1/2 to do so; others don't. So ask. But the IRS requires that companies must allow active employees to take a withdrawal if the money is used for one of the so-called "hardship" purposes, which include:

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.

More info here: 401(k) Resource Guide - Plan Sponsors - General Distribution Rules . Read the section about halfway down entitrled "Hardship distributions." And again - ask your HR department about your company's policy.