When you're under 59 1/2, getting money out of your 401(k) can feel like pulling teeth or picking a lockbox. The IRS doesn't allow you to take distributions unless you've left the company, suffered a permanent disability, or have a severe financial hardship. What's more, the hardship withdrawal is only available if your plan allows it and you meet the criteria, which can vary from plan to plan. For example, one plan might allow hardship withdrawals for major medical expenses, another might only allow it for tuition and a third might not allow any hardship withdrawals. Even when you can get money out, you're going to owe an extra 10 percent penalty on top of the income taxes unless you qualify for an early withdrawal exception.
Complete a distribution request form from your 401(k) plan. These forms differ from bank to bank, so you need to request one from your financial institution. But, they generally require the same information -- name, address, Social Security number, account information and the amount of the withdrawal. If you're taking a hardship distribution, you'll need to provide evidence of the amount of the hardship, such as a mortgage foreclosure or medical bills.
Submit the form to your 401(k) plan administrator. The request will be processed and you will receive a check or have the money deposited in the account you indicated on the withdrawal form.
Report the distribution as income on your taxes. You must use Form 1040 or Form 1040A when you have income from a 401(k) plan withdrawal. For example, if you draw $8,000, you must include an extra $8,000 as taxable income.
Complete Form 5329 to figure your 10 percent early withdrawal penalty or report your exception. Exceptions that cover the entire amount of the withdrawal include distributions taken because of a permanent disability, distributions made to a beneficiary after the plan owner's death, qualified reservist distributions and distributions made to satisfy a qualified domestic relations order. Your distribution is also exempt up to the amount of medical expenses that exceed a certain percentage of your adjusted gross income.
Items you will need
- 401(k) withdrawal form
- IRS Form 1040 or 1040A
- IRS Form 5329
- If you're married, your plan might require your spouse to sign off on any distributions you take from the plan.
- Internal Revenue Service: General Distribution Rules
- Internal Revenue Service: Retirement Plans FAQs regarding Hardship Distributions
- Internal Revenue Service: Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs
- Midwest Actuaries: Election of Distribution Payment
- Utah Retirement Systems: 401(k) Hardship Withdrawal Application
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