We recently purchased a home (this moved quickly!) and I complained a little about all the extra paperwork I had to fill out and all the documents I had to produce. One of the documents I had to produce was a document from my 401(k) plan administrator detailing the hardship withdrawal rules for my 401(k). The last 7-8 years of the Great Recession and people falling behind on mortgage payments has resulted in banks wanting to know if there’s some sort of backup plan. While a hardship withdrawal is hardly a great backup plan, it’s better than nothing.
As it turns out, your 401(k) isn’t required to give you the ability to make a hardship withdrawal. There are general guidelines from the IRS as to what is considered a “hardship” and how you “prove” you need the funds, but your retirement plan gets to set the specifics. The IRS has general guidelines but the basic requirement is that the distribution is made because of an “immediate and heavy financial need” and that the amount must be “necessary to satisfy the financial need.”
(click here to continue reading…)