401k Hardship Distribution

[Guest run_n_fool]

Hello Everyone,

My question is regarding hardship distributions. My employer allows for these distributions and I am in the process of applying for one. I am currently late on the 1st bi-annual installment of my property taxes (not an insignificant amount in my area, unfortunately) and the 2nd installment is coming due in 2 days. I am current on my credit cards, mortgage, and car loan, but I carry balances on the revolving credit and I am barely making ends meet on a month to month basis. I would like to take a 1x distribution to pay in full my taxes and the credit cards and gain a bit of breathing space.

Would being late on the taxes qualify as a hardship distribution for the purposes of the penalty? If so, can I take out more than the actual amount I am behind on the taxes so I can pay down the other revolving debt?

If this does not qualify, what portion of the distribution is subject to taxes? If I took out a $20,000 distribution and was hit with a $2,000 penalty, is the full $20,000 subject to taxes or just the net amount of $18,000?

Thank you all for your responses. I am not proud of the fact that I am in this situation and I do not take my financial obligations lightly.

[masteff]

Have you received a past due notice on your taxes? And does it make reference to the consequences of failing to pay your taxes, such as tax liens and/or seizure? If so, then you can likely take a hardship w/drwl to prevent eviction or foreclosure. But you can only take enough to cover this year's taxes (as part is past due and part is due by the time the w/drwl could be processed). You might do a search on this board for "prevent eviction" to see similar threads and discussions.

As for the other debts... Congress and the IRS established a very narrow definition of hardship for this type of withdrawal. Paying down your debts will not qualify. You should talk w/ your plan administrator to determine what qualifying reasons the plan allows for withdrawals and see if you meet any of those reasons.

As to the tax and penalty... you pay based on the full gross amount of the distribution.