Suppose you need to borrow money in a hurry and your only obvious option is a bank loan with sky-high interest — if you can even obtain one. Consider an unusual source: your 401(k) plan or IRA.
These accounts are meant to provide income for retirement, so they should not be "raided" without good reason. As a last resort, however, a 401(k) or IRA could provide the funds you desperately need.
With an IRA, you can take out the money without restraint, because it's yours to do as you wish. But you can only withdraw funds from a 401(k) with your employer's approval (if it's even permitted). The list of reasons you can make a hardship withdrawal includes:
There are several exceptions to the 10 percent penalty that may or may not align with the reasons for hardship withdrawals. For instance, you might be able to avoid the penalty on early distributions from a 401(k) to pay emergency medical expenses, but not to pay your child's college tuition for the upcoming school year.
A hardship withdrawal is typically never someone's first choice, but sometimes it's the last option. Consider all your other options before moving ahead with a hardship withdrawal. Call us today if you'd like talk about your options.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!