401k hardship withdrawal?

Question

What kind of documentation will I have to provide my company with for a 401k hardship withdrawal for medical reasons? If approved, will they send the money to my creditors for me or will I have to do it myself?

Answer 1

The specific answer will be governed by the plans provisions but generally: you will first need to exhaust all traditional loans available to you before applying for a hardship withdrawal. Assuming that you have done that remember that there are commonly only 8 very specific reasons that a hardship will be granted - unpaid medical bills would qualify and you would need to submit that unpaid bill. It is important to note the rules are very specific - so for instance; having a medical bill on a credit card that you can't pay will probably not qualify - most plans will consider this bill "paid" for purposes of the hardship withdrawal.

In short you want to build as convincing a case for yourself as you can. The check, in most cases, will be paid directly to you.

The hardship withdrawal is not to be entered into lightly. You will pay tax and if under 59.5 a penalty for this withdrawal. Depending on your tax bracket that can mean about 50% will be lost to the government.

Answer 2

First off, a home purchase does not qualify as a hardship, so no in-service distribution from your 401(k) would be possible. If the plan allows for an in-service distribution for a home purchase -- and frankly I've never seen one that does -- you still owe the taxes and 10% penalty on the distribution. If it does not allow an in-service distribution for purchase of a home then you must quit your job to take the distribution. The tax withholding is 20%, not 10%. Since your total tax including the 10% penalty will be 35% using your numbers, you'll have to come up with the other 15% elsewhere, either from over-withholding from your wages or pay up when you file your return next year. If they only withheld 10%, you'd have to come up with 25%.

Answer 3

Each 401k plan has different rules for hardship withdrawls. You will have to ask your HR dept.

Keep in mind that the withdrawl will be taxed and there might be a 10% penalty. Medical bills are one exception to the 10% penalty but only to the extent that the bills exceed 7.5% of your income.

Answer 4

depends on the plan.....all the law requires is a personal attestation by the participant. However, some plans require physical evidence of the hardship (a bill, foreclosure notice, etc etc). Just because the law doesn't require it doesn't mean the plan has to follow the same rules. The plan can be more stringent so you'll have to ask your plan administrator. Also, they will not send the money fro you. You'll have to do that.

Answer 5

rules change yearly and depend on the details of your plan--- talk to your fund manager for the best answer!!!