I’m not dishonest by any means. But my husband and I bought a house last year everything has broke septic etc. So now we are up to our heads in bills. Would I get into big trouble if I did a withdrawal for like 1000.00 said I was using it for medical bills I owed but then didn’t pay the medical bills ? When I called my plan admin today they told me they can’t track what people do with the money. But can the irs ? Will I go to jail ?
The IRS does not care what you do with the money. A hardship distribution is no different that any other distribution. "Hardship" only allows you to take the distribution prior to retirement. The plan determines if it will allow hardship distributions at all. That is the plan rules and has nothing to do with the IRS.
Ok thanks that’s what I thought. My conscience makes me feel like it’s wrong but we have a few bills that need taken care of that my plan doesn’t allow withdrawal for. And we aren’t talking about thousands of dollars just a mere 1000.00.
Prior to making the distribution the employer is required to substantiate the immediate and heavy financial need. That would generally preclude claiming any fraudulent reason. For example, if you are claiming that the need is for medical expenses you would have to supply the employer with documentation such as bills or estimates from the medical service provider.
Substantiation Guidelines: https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf
Trust your conscience. Making fraudulent claims to obtain a distribution of $1,000, of which you might probably only net something like $600 to $700 after federal and state taxes and early-distribution penalty, is ill advised. Perhaps the plan allows for a 401(k) loan that you could obtain legitimately.
Note that it is a hardship distribution only if you are still working for the employer that provides the 401(k) plan.