Learn when and how you can access your 401(k) funds in times of financial need

  • Hardship distributions are only available if there is an immediate and heavy financial need
  • Plans are not required to allow hardship withdrawals
  • Safe-harbor definition is commonly used for determining immediate and heavy financial need
  • Certain events automatically qualify for hardship distributions
  • Hardship distributions must be limited to the amount necessary to satisfy the need
  • SECURE 2.0 simplified the documentation of hardship distributions
  • New Emergency Withdrawal Exception allows for penalty-free withdrawals up to $1,000
  • Hardship distributions are usually a last resort

Hardship distributions from a 401(k) plan are only available if there is an immediate and heavy financial need. However, plans are not required to allow hardship withdrawals, so it is important to check the plan documents to see what is allowed. Most plans use the safe-harbor definition for determining immediate and heavy financial need. There are certain events that automatically qualify for hardship distributions, such as medical care expenses, expenses resulting from a disaster, funeral expenses, and more. However, the amount of the distribution must be limited to what is necessary to satisfy the need. SECURE 2.0 has simplified the documentation process for hardship distributions, allowing employers to rely on an employee’s written attestation of the need. Additionally, there is a new Emergency Withdrawal Exception that allows for penalty-free withdrawals up to $1,000 for unforeseeable or immediate financial needs. However, this exemption is still being implemented by most plans. It is important to note that hardship distributions are usually taxable and may be subject to an additional 10% early distribution penalty. They cannot be repaid or rolled over to another plan. Therefore, hardship distributions should be considered a last resort option.

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Private Companies:
Key People: Dan Moisand (financial planner)

Factuality Level: 8
Justification: The article provides clear information about the conditions and limitations of hardship distributions from a 401(k) plan. It explains the terms ‘immediate and heavy financial need’ and ‘necessary to satisfy the need’ and provides examples of events that may qualify for a hardship distribution. It also mentions the new Emergency Withdrawal Exception introduced by SECURE 2.0. The information is supported by the mention of plan documents and the need for substantiating a hardship distribution. The article does not contain any irrelevant or misleading information, sensationalism, redundancy, or opinion masquerading as fact. It is well-researched and provides accurate and objective information.

Noise Level: 3
Justification: The article contains some relevant information about accessing a 401(k) early and the conditions for hardship distributions. However, there is a significant amount of filler content, including a section about SECURE 2.0 that is not directly related to the main topic. The article also includes unnecessary information about the author’s contact details and a disclaimer. Overall, the article could have been more focused and concise.

Financial Relevance: Yes
Financial Markets Impacted: No

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article discusses accessing a 401(k) early and the rules surrounding hardship distributions. While it pertains to financial topics, there is no mention of any extreme events or their impact.

Reported publicly: www.marketwatch.com