A hardship provision, if included in your plan, allows you to receive a distribution under certain qualifying reasons. All other options, including a 401(k) loan, must have been exhausted before a hardship distribution would be approved. In addition, the plan Trustee must give consent for the hardship. Qualifying reasons for a hardship distribution are:
• Medical Expenses – Yourself, Spouse or Dependents
• Educational Expenses – Room & Board, Tuition, & Fees (No Books)
• Purchase of a Principal Residence – Excluding Mortgage Payments
• To Prevent Eviction or Foreclosure on a Principal Residence
• Burial or Funeral Expenses – Spouse, Children, Parents or Dependents
• Damage of Principal Residence Due to Storm, Fire, or Similar Casualties
What amount is available for a hardship distribution?
Under IRS Safe Harbor Standards, you are only eligible to withdraw the amount that would satisfy your hardship. Typically, distributions are allowed from a deferral account; however, gains are not eligible. Those funds would remain in the plan until eligible for distribution.
What are the consequences of taking a hardship?
The distribution is taxable. If you are under age 59 ½, you may also incur a 10% penalty.