401k Hardship Withdraw

Forum|Forum|3 years ago
May 27, 2023
3 replies
21 views

If I withdraw my 401k under hardship and use it to pay off debt on cards, will I get in trouble for using for something other than a reason they list?

VolvoGirl

Level 15

Who is they? The 401K plan? You have to ask them. But for taxes it will be taxable and a 10% Early Withdrawal Penalty if you are under 59 1/2. There's only a few exceptions to the penalty.

401K penalty exceptions

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/exceptions-penalty-early-withdrawal-401-k/L9NbxLuiL_US_en_US

Critter-3

Level 15

Ok ... let you in on a secret ... the 401K plan administrator just needs to justify the distribution and "hardship" is one of the allowed boxes on the form. They NEVER check to see what you actually used the money for HOWEVER ALL distributions are subject to fed/state taxes AND a 10% penalty if you don't have an exception for the penalty.

fanfare

Level 15

wanting to pay down your credit cards is not considered a hardship for 401k purposes.

but 10% penalty is probably less than the interest you are paying on the credit card aver a long time.

@Rahille2

Opus 17

Level 15

The plan sets the rules on hardship withdrawals, and it is up to the plan to enforce those rules. You won't get in trouble if you use the funds for something other than you claim. Potentially the plan could get in trouble if the IRS determines they don't have proper internal controls.

Rahille2Author

Level 2

Okay so the IRS or my plan (Voya Financial) can't do anything if I take a hardship withdrawal given I don't have an actual hardship?

Opus 17

Level 15

@Rahille2

You probably must sign some kind of certification that you meet the hardship conditions. We can’t give legal advice on what might happen to you if you knowingly sign a false verification.

There are no IRS penalties on your tax return if you sign a false hardship certification. But your company might not be very happy if you put their entire retirement scheme at risk.