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Early Distribution Penalty

EarlyD — Fri, 04 Feb 2022 20:59:43 GMT

I was unemployed and took distributions from my 401(k) to pay for household expenses. When I had my distributions made they were going to be for college expenses, but was able to do so. Can I avoid the early withdrawal penalty by having the classified as a hardship distribution? If so, how do I make that happen?

Re: Early Distribution Penalty

DaveF1006 — Fri, 04 Feb 2022 21:44:30 GMT

it depends. Were you able to use these as college expenses or not. I couldn't tell from your statement. If not, there are certain hardships that will allow you to withdraw from your plan. Please read the following link published by the IRS. Look under 401K to see what hardships are exceptions.

If your 1099R has a code 1, as you enter your 1099R, there will be a section that will say Let's See If We Can Lower Your Tax Bill. Next screen are the exceptions that are allowed for your 401K distribution to be considered a hardship. Here is what that screen looks like.

Re: Early Distribution Penalty

SweetieJean — Fri, 04 Feb 2022 22:35:19 GMT

Be aware that a "hardship" withdrawal as allowed by the plan documents is not necessarily considered as a hardship by the IRS.

Re: Early Distribution Penalty

dmertz — Sat, 05 Feb 2022 03:54:49 GMT

There is no penalty exception for "hardship" (other than hardship distributions received as 2021 qualified disaster distributions reportable on Form 8915-F).