Yes, if your 401(k) plan allows hardship distributions, you can withdraw money for yourself, your spouse, or your dependent for what the IRS deems "an immediate and heavy financial need.” Your plan may allow withdrawals for some or all of the following reasons:
- Certain medical expenses
- The purchase of your main home
- Tuition and educational expenses
- Payments to prevent eviction or foreclosure on your main home
- Burial or funeral expenses
- Certain expenses for the repair of damage to your main home
It's up to your employer and the plan custodian to approve your request for a hardship withdrawal.
Unlike a loan against your 401(k), a hardship withdrawal can’t be repaid. It will be treated as a taxable distribution and reported on a 1099-R. Also, if you’re under age 59 1/2, you may have to pay a 10% early distribution penalty if you don’t qualify for an exception. In most cases, you can’t make contributions to the plan again for at least six months following your withdrawal.
If you need to take money out of your retirement plan ASAP, keep in mind that the 10 percent early withdrawal penalty may be waived on up to $100K of retirement funds withdrawn if you are a qualified individual impacted by Coronavirus. You are a qualified individual if:
- You, your spouse, or dependent are diagnosed with Coronavirus
- You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off
- You had hours reduced due to Coronavirus
- You are unable to work due to your child care closing or reducing hours
Additionally, income attributable to such distributions would be subject to tax over three years, and you may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.