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