When you contribute money to your 401k, the only way to get the money out before you turn 59.5 is if you borrow the money or activate what’s called a hardship withdrawal. Now, in both cases (borrowing or hardship withdrawing), they are permitted by law but your employer isn’t required to allow you the ability to do either of them because managing it ends up being really expensive (and thus difficult for a small company to do). Ask your HR if you can even do a hardship withdrawal or a loan.
Now, in order for you to qualify for a hardship withdrawal you must satisfy these rules:
- there must be an immediate and heavy financial need…
- the withdrawal must be necessary to satisfy the need…
- the withdrawal can’t be more than what you need…
- you must also first get all the other possible distribution or nontaxable loans available under the plan…
- you do not contribute to your 401k for six months after the withdrawal.
So, what qualifies as a hardship?
- Unreimbursed medical expenses for you, spouse, and your dependents (including spouse).
- Purchasing a principal residence.
- College tuition or related costs like room and board for the next 12 months for you, spouse, dependents, and children who are no longer dependents.
- Payments to prevent eviction from your home or foreclosure on the home.
- Funeral expenses and repair of a primary residence.
Of course, hardship withdrawals aren’t without a little bit of pain… since you didn’t pay income tax on it, you’ll have to pay income tax plus a 10% penalty. Ouch… you better need that money.