Odd Hardship Withdrawl Exception in Your 401k
Did you know that you can withdraw money from your 401k to cover the funeral expense of your parents, spouse, children, dependents?
I was watching the PBS Frontline episode on retirement, goofing off and decided to look up 401k on Wikipedia. Per the documentary, did you know the 401k clause was written for executives of Kodak and Xerox to protect compensation for their executives? (Found the documentary through another PF blog, but now I forget which one.)
From wikipedia (which is kind of unreliable and I’ll have to stop using it):
# Funeral expenses for the employee’s deceased parent(s), spouse, child(ren), or dependent(s) (as of December 31, 2005)
D wrote:
Fascinating! This is, as it should be. The loss of someone so close, can cripple a person in so many ways.
Posted on 13-Mar-07 at 11:05 am | Permalink
Moneymonk wrote:
Yeah I believe funeral expenses and down payment on a first home are the only exceptions
Posted on 14-Mar-07 at 5:22 pm | Permalink
The Sarcasticynic wrote:
Now there’s irony. A Tax loophole written to help bigwig CEOs that also helps the little guy.
Posted on 14-Mar-07 at 8:58 pm | Permalink
tinyhands wrote:
(my previous comment disappeared)
Not all 401k plans are created equal. IRS.gov indicates that hardship withdrawl provisions are allowed, but not required for all plans.
Most importantly, it says that hardship withdrawls are added to gross income, meaning they’re taxable, and may be subject to early withdrawl penalties! It goes on to say that hardship withdrawls must show an immediate need (i.e. no other financial resources available) but you aren’t required to repay them (as with a 401k loan).
Read the fine print, as this is not necessarily an option, let alone an attractive option.
Posted on 15-Mar-07 at 11:40 am | Permalink