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401(k) plan hardship distributions – consider the consequences

There’s some good advice to consider if you have  “401(k) plan hardship distributions – consider the consequences,” posted by the IRS.  Here are some of the highlights.

If you suffer a financial hardship, you might be able to withdraw money from your 401(k) plan before you retire.  Some 401(k) plans may allow a hardship distribution to pay certain expenses for you, your spouse, your dependent or your primary beneficiary, for example:

•  medical expenses,

•  funeral expenses, or

•  tuition and related educational expenses.

However, you should know the following consequences before taking a hardship distribution:

•  The amount of the hardship distribution will permanently reduce the amount you will have in the plan when you retire.

•  You must pay income tax on any previously untaxed amount of the hardship distribution.

•  You may also have to pay an additional 10% tax, unless you are 59½ or older, or qualify for another exception
•  You may not be able to contribute to the plan for six months after you receive the hardship distribution.

Remember, a 401(k) plan is designed to help you save money for your retirement while you’re working. So, consider the consequences before dipping into your retirement


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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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