Hardship withdraw from 401k tax exemptions?

Hardship withdraw from 401k tax exemptions?

Postby darek » Sat Feb 19, 2011 3:27 pm

On 11/2010.  I withdrew 15,000.00 from my 401k to put down on a primary residence(first time homebuyer).  My understanding is that IRS has certain tax rule exemption on Hardship withdrawl up to 10,000.00.  Does anybody know the rule to the exemption early withdrawl from a 401k? if so, what is the IRS form that I need to fill out, what is the CA-FTB form that I need to Fill out? what I'm finding out that rule only applies to early withdraw from IRA accounts.
darek
 
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Hardship withdraw from 401k tax exemptions?

Postby lev » Sat Feb 19, 2011 3:29 pm

We had to take 2 hardship withdrawals this year for emergency home repairs.

We were allowed to not have taxes withheld from our disbursement check, and acknowledge they will be done at tax time 2012 for the 2011 filing year.

Ours were smaller, around $3500 each, and we were not informed of any tax exemption...only offered to elect to not have the taxes taken directly out of the disbursement at this time.

I hope any of that helps you, but I'm also answering so I can find this question again, so if someone has info for you about that, then it will help us out, too.

Good luck!
lev
 
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Hardship withdraw from 401k tax exemptions?

Postby gaffney35 » Sat Feb 19, 2011 3:31 pm

No, there is no tax exemption - a hardship withdrawal is there to allow you to withdraw the money only - you still pay the tax and penalty if you are under 59 1/2. You are expected to declare the withdrawal as income on your 2010 taxes and your employer should have withheld the 10% penalty when you received your withdrawal.
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Hardship withdraw from 401k tax exemptions?

Postby javiero » Sat Feb 19, 2011 3:33 pm

YEP different rules for IRA and 401k early withdrawals
This money was never taxed, and will be taxed upon withdrawal, no matter your age
But early withdrawal also incurs a 10% penalty, with certain exceptions

And despite what poster above says, it is NOT a good idea to forgo the withholding on these distributions as there is tax
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Hardship withdraw from 401k tax exemptions?

Postby elmore » Sat Feb 19, 2011 3:35 pm

from the IRS website:

Hardship distributions are includible in gross income unless they consist of designated Roth contributions. In addition, they may be subject to an additional tax on early distributions of elective contributions. Unlike loans, hardship distributions are not repaid to the plan. Thus, a hardship distribution permanently reduces the employee's account balance under the plan.

looks like you will probably owe at least $3750 in tax and penalty on that withdrawal (or your refund will be reduced by that much) - based on a 25% tax bracket

read the 1040 instructions for teh required forms -search for and download forms and instr at www.irs.gov
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Hardship withdraw from 401k tax exemptions?

Postby kealan » Sat Feb 19, 2011 3:36 pm

from the IRS website:

Hardship distributions are includible in gross income unless they consist of designated Roth contributions. In addition, they may be subject to an additional tax on early distributions of elective contributions. Unlike loans, hardship distributions are not repaid to the plan. Thus, a hardship distribution permanently reduces the employee's account balance under the plan.

looks like you will probably owe at least $3750 in tax and penalty on that withdrawal (or your refund will be reduced by that much) - based on a 25% tax bracket

read the 1040 instructions for teh required forms -search for and download forms and instr at www.irs.gov
Apparently, you didn't like my previous answer.

There are no exceptions to pay taxes and the exception to the 10% penalty only applies to IRAs and not 401k's.

From the IRS's instructions for Form 5329:

"IRA distributions made for purchase of a first home, up to $10,000."
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Hardship withdraw from 401k tax exemptions?

Postby ingalls29 » Sat Feb 19, 2011 3:38 pm

Hardship has nothing to do with the taxation of a distribution from a 401(k). Hardship merely lets you unlock the safe and take the money.

You'll owe income tax and a 10% early withdrawal penalty unless you're above age 59 1/2.

That's brutal. I know what it is to be desperate, but taking the money out of your 401(k) was a huge disadvantage in terms of raising the funds any other way. If you gotta do it you gotta do it.
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Hardship withdraw from 401k tax exemptions?

Postby bhaic82 » Sat Feb 19, 2011 3:40 pm

the expenses that will satisfy are:
medical, employee, spouse or dependent
expenditures to purchase a principal residence
post secondary tuition for employee, spouse or dependent
expenditures to stave off eviction or foreclosure of principal residence
burial or funeral expenses of deceased parents, spouse or dependent
expenses for repair of casualty damage to principal residence
there are more exceptions in NOTICE 2007-7 from IRS
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