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Thanks for coming to Bills.com and thanks for your question on 401(k) hardship withdrawals.
First, let me start and explain what a 401(k) plan is. A 401(k) plan is typically an employer
sponsored compensation program where you are able to set aside pre-tax dollars towards
savings and ultimately a retirement plan which frequently is met by your employer. On average
the median is about 50% of your contribution is met by your employer and could range from
zero up to 100% of what you are contributing to your 401(k) plan. Now, with respect to
hardship withdrawal, what that means is if you have built aside or accumulated a significant
amount of money in your 401(k) plan, and would like to withdraw those funds before the qualifying
age of 59 ½ most typically, there is a 10% penalty plus you will be forced to pay the
taxes that you would have paid on those, that compensations from your employer. There is
only a handful of situations where you can take out those funds without the 10% withdrawal
penalty, those include; Paying for uncovered medical expenses, tuition and college for
you or a dependent, buying your first home, or to help you avoid foreclosure. Really what
you should do though is talk to your plan administrator and seek advice from a counselor
and figure out if a 401(k) hardship withdrawal is something you qualify for and if it’s
the best thing that you can do with your money. Very frequently it is an expensive use of
your money and if you could get access to a loan, refinancing a mortgage, or even sometimes
a 401(k) loan against the balance of your 401(K). It is a lot cheaper use of capital
and a better solution for many people. Thanks for your question and hope that helps.