Hardship withdrawals from 401K

[Guest Theresa Fox]

I'm 54 and I was downsized last year. The only work I can find is min. wage. To top things off my husband lost both kidneys in June. How can I find out about hardship withdrawals from my 401K?

[Guest JCatt]

I'm not 100% sure, but I'm assuming from your report that you were downsized that you are no longer working for the company that sponsored the 401(k). If that is the case, you will most likely be able to take a distribution based on Separation of Service rather than Hardship. If i were you, I'd contact a benefits person at the company and inquire about the availability of the funds.

Hardships are generally for current employees to take an inservice withdrawal, and typically require a varying degree of qualifying event (e.g. to prevent eviction or to purchase a primary residence, uninsured medical expenses, etc.) The amount available may also be limited. Separation of Service distributions generally only require that the plan participant is no longer working for the company, in which case they can typically take out their entire vested balance.

Neither distribution reason carries a tax benefit that would make it more desirable than the other, although 20% withholding is mandatory on the eligible rollover amount, which would really only come into play with the Separation of Service. In either case, the IRS is likely to levy a 10% Premature Distribution penalty - you should talk with a tax advisor to discuss your options.

Best of luck, JCatt