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:
- 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.
- There is a 10% withdrawal fee for hardship withdrawals if you aren’t at least 59 1/2 years old.
- 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.
Resources Mentioned:
