The Internal Revenue Service permits individuals to make hardship withdrawals from their 401(k) accounts, although it does not force plans to offer such an option, says The Nest. Such withdrawals have to meet "immediate and heavy financial need," and the IRS gives discretion to plans on making the final decision. However, it lists six conditions that plans must honor if they offer hardship withdrawals. The individual may also only withdraw enough to deal with the hardship and related costs.Continue Reading
Among the six conditions listed by the IRS that qualify an individual for a hardship withdrawal are bills related to buying a home; medical expenses, tuition and related expenses for college-equivalent or above education; overdue rent or mortgage payment to prevent eviction or foreclosure; funeral and burial costs; and major home repairs after damage, explains The Nest. These expenses do not have to be sudden or unexpected to qualify.
The withdrawal is considered as any other income when it comes to taxes, says The Nest. The IRS also charges a fee of 10 percent of the withdrawal, unless the expenses are medical and exceed a certain percentage of income; are related to job loss after the age of 55; involve disability care; or are to be used for child-support payments or alimony as mandated by a court.Learn more about Financial Planning