To tend to your future needs on your retirement days, 401k plans will encourage you to save for it as early as now. The tax law provides you a way to fund your plan and to let it grow but the funds can only be withdrawn after you reach the age of 59 ½. However in certain limited situations of financial constraints, you might be allowed to withdraw from this account. Situations include potential eviction from your primary residence, for medical expenses and for your need to survive your day to day needs given your current and anticipated income. If you are on this dire situation, follow these steps to apply for a 401k hardship.
- Consult your company’s human resource department. Before anything else, you should first consult your company’s human resource department to know whether your plan will allow you to make some withdrawals. They too, have separate and complicated guidelines to follow in respect to the situation. This program might be detrimental for small and unstable companies.
- Secure or request hardship withdrawal forms. Some forms can be downloaded while others are subjected to personal request.
- Read the guidelines carefully. When you have received the forms, you will have to read and understand the content of the participant guidelines on hardship withdrawals or other information pertaining to the application. In these guidelines, you would find the necessary requirements for approval. Assess first if you do have these requirements before proceeding with the request. This should be done before you complete the form.
- Fill your forms. You can type the information and print the form or write it legibly using black ink. It is important to fill the forms as clearly as possible.
- Ready necessary documents for submission with the forms. Withdrawal request have to be supported with appropriate and necessary documents. Applications sent without supporting documents will not be subjected for approval. Processing of your request might be delayed if you fail to submit these documents along with your application. Some companies would require you to sign the form in the presence of a notary public. Be ready for this.
- Submit the form to yout plan administrator for approval. After you have completed the application form and have attached the necessary documents that will prove your eligibility for the request, submit all these important papers to your plan administrator for his assessment and approval.
- Wait for the distribution of your request. The distribution of your hardship withdrawal will be according to the distribution guidelines specific to your plan.
- Know the penalties entailed. Note that this withdrawal is subject to tax and that you will be penalized with a 10% deduction for early withdrawal. That is why you should check if you can have a 401k loan first, which does not have a tax penalty.
There might be some difficulty with this kind of request. There will be a considerable impact on your financial future. It is highly recommended to consult first your tax advisor before applying. This request should be your last resort.