How do I make a hardship withdrawal from my plan?
Before making a hardship withdrawal, you'll want to know it works, how to qualify, and the taxes and penalties involved.
How do I request a hardship withdrawal?
A retirement plan may, but is not required to, provide for hardship withdrawals.
To make a withdrawal, your employer will generally require that you submit a request in writing. Plans handle withdrawals differently, so you’ll want to check out the distribution requirements specific to your plan.
Before you make a hardship withdrawal, it’s good to understand how you may qualify and how it will affect your taxes and the actual amount you receive.
How do I qualify for a hardship withdrawal?
A hardship withdrawal must satisfy an immediate financial need. Hardship withdrawals may be used to pay for things like:
- Medical expenses
- College tuition payments and related costs
- Payments to prevent foreclosure or eviction from your home
- Expenses to repair damage to your home
- Money to purchase your primary residence
- Funeral expenses
How much money can I withdraw?
You may be able to withdraw up to the total vested balance of your account, minus the amount of any previous hardship withdrawals you've made. In some cases, you may be penalized from making further contributions to your retirement savings plan for a certain time period after a hardship withdrawal, which will further impact your retirement savings. Make sure to check your plan rules to make an informed decision.
Will making a withdrawal affect my taxes?
Hardship withdrawals are subject to income tax and, if you're not at least 59 ½ years of age, a 10% withdrawal penalty. However, unlike a retirement plan loan, you don't have to repay the withdrawal amount.
The bottom line
Making a withdrawal from your plan before retirement may be necessary when facing a hardship. Just keep in mind that the taxes and penalty will significantly impact the final amount.