Inside The Plan

The Hard Facts on Hardship Distributions

Apr 29, 2019

In this episode of Inside the Plan with the 401(k) Brothers, Bill Bush and Andy Bush, advisors at Horizon Financial Group, provide us with insight into what a 401(k) plan hardship withdrawal is, what the rules and restrictions involved in hardship withdrawals are, and how law changes have affected the regulations of hardship distributions.

Show Notes:

  • 0:30--- Are hardship withdrawals an optional feature in a 401(k) plan
  • 0:48--- What is a hardship withdrawal
  • 2:44--- What are the costs involved in hardship withdrawals
  • 3:25--- What are some of the regulations of a hardship loan
  • 4:33--- How does the Tax Cut and Job Act effect hardship withdrawals
  • 6:11--- You used to not be able to defer or contribute to your 401(k) plan for 6 months
  • 7:33--- How can you avoid the 10% penalty fee for hardship withdrawals

3 Key Points:

  1. The reasons you can take a hardship withdrawal: medical expenses, purchase of your principal residence, to prevent eviction, post-secondary education, funeral expenses, and to repair home damage.
  2. There is a 10% withdrawal fee for hardship withdrawals if you aren’t at least 59 1/2 years old.
  3. Hardship withdrawals don’t need to be paid back.

Tweetable Quotes:

-       “Hardship withdrawals aren’t free. There is a cost involved in that, and that would be…they are taxable.” – Bill Bush.

-       “The hardship withdrawal cannot exceed the amount of the need.” – Andy Bush.

-       “Most people are going to look for other measures first, I would think, before they tap into their retirement savings.” – Andy Bush.

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