Most 401k account holders start out with the idea of saving money only for retirement. Along the way, some unexpected expenses can come up. One situation which could lead to the need to take money from your account is an unexpected death. If you need to pay for funeral expenses, you may be eligible to take money out of your 401k and use it for the bill.
Contact your 401k administrator to ask about the possibility of a hardship withdrawal. Some 401k plans allow account holders a hardship withdrawal in emergency situations. If hardship withdrawals are allowed with your plan, your plan administrator can provide you with a hardship withdrawal distribution request form.
Complete the form that is provided by the plan administrator. Include your financial information, your name, address and Social Security number, then submit it back to the plan administrator. The plan administrator will review your request and send you a check for the amount of your request if the requirements for a hardship withdrawal are met. You will be charged a 10 percent penalty if you take the money out before the age of 59 1/2. You will also have to pay taxes on the amount you take out.
Apply for a 401k loan to get the money if you do not want to use a hardship withdrawal. When you use a 401k loan, you will not have to pay a 10 percent early distribution penalty or pay taxes on the money. You can borrow up to 50 percent of your account balance and you will have to pay back the loan with interest. Not every 401k plan allows loans, so check with your plan administrator to see if this is an option. If it is allowed, fill out a form similar to what is required with a hardship withdrawal. Then the administrator will provide you with a check for the amount you borrow.
- 401k Help Center: 401k Hardship Withdrawals - An Overview
- IRS.gov; Retirement Plans FAQs regarding Hardship Distributions; November 2010
- The Money Alert: 401k Loan — A Good Idea?
- IRS. "Retirement Topics - Hardship Distributions." Accessed Oct. 30, 2020.
- IRS. "Retirement Topics – Exceptions to Tax on Early Distributions." Accessed Oct. 30, 2020.
- IRS. "Retirement Plan FAQs Regarding Hardship Distributions." Accessed Oct. 30, 2020.
- Legal Information Institute. “11 U.S. Code § 522. Exemptions.” Accessed Oct. 30, 2020.
- IRS. “Retirement Plans FAQs Regarding Hardship Distributions.” Accessed Oct. 30, 2020.
- IRS. "401k Resource Guide – Plan Participants – General Distribution Rules." Accessed Oct. 30, 2020.
Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.