Everyone, no matter who they are, will face some financial hardship in their lives. When that happens, we may need to dip into our retirement savings, like our 401k funds. If you have a 401k, you’re not allowed to touch it until you retire – but you may be able to access the money in your 401k with a hardship withdrawal. A hardship withdrawal is exactly what it sounds like – special permission to take money out of your 401k fund because you’re experiencing an emergency that requires money to be resolved.
The government stipulated that American workers can access their 401k retirement funds in important situations, with very steep taxes and penalties, as defined below:
-Medical expenses get out of control, and your health insurance only covers part of them
-Needing money to buy a home
-Mortgage or rent payments in order to preclude eviction or foreclosure
-Repairs to your home
Clearly, these stipulations for hardship withdrawals from your 401k retirement fund are meant to ensure that the money goes to important things, not vacations or fancy clothing.
The following hardship withdrawals from your 401k retirement fund are penalty-free:
-Child support, as mandated by a court order
-Becoming completely disabled
-Medical expenses greater than 7.5% of your income
-You are no longer employed by your company after age 55
Hardship withdrawals from your 401k retirement fund are sometimes complex. Be sure to go over the process with a financial adviser or representative from your company’s human resources department to fully understand how it works.