My wife, an RN, had an injury at work and became disabled and no longer works. She now draws Social Security Disability. Because its not close to what she was earning as an RN, this has caused us a hardship. I still work fulltime, as I am still in my early fifties, and I have a sizable 401K. I am eligible to take out a Hardship Withdraw for the purpose of paying off our primary residence. My question is: If I take a withdraw due to a hardship, do I still have to pay the penalty for taking a withdraw prior to being 59-1/2 years old? I do understand I still have to pay the taxes. But would uncle Sam wave the penalty because of the hardship?
Thanks in advance,
RB
A "hardship" is just a reason the 401K administrator needs to issue an early distribution and has no basis in/on an income tax return. If the distribution doesn't qualify for an exception to the 10% penalty then you will owe that as well as the income tax on the amount withdrawn ... the 1099-R will have the correct code in box 7 and must be entered as such on the return.
IRS 401K plan Info. Scroll down and see Tax on Early Distributions with a list of exceptions.
Sorry, there is not an early distribution penalty exception for a hardship when the distribution is from a 401(k)
Go to this IRS Tax Topic for early distributions from other than an IRA - https://www.irs.gov/taxtopics/tc558
@RB1970 the chart at this IRS site may be easier to digest
there are a few exceptions if SHE has a 401k....
I don't see anything on this list that waives the 10% for a Hardship Witdrawal to pay off a mortgage either.
A "hardship" is just a reason the 401K administrator needs to issue an early distribution and has no basis in/on an income tax return. If the distribution doesn't qualify for an exception to the 10% penalty then you will owe that as well as the income tax on the amount withdrawn ... the 1099-R will have the correct code in box 7 and must be entered as such on the return.