Can a hardship withdrawal be denied?

Asked by: Waylon Rutherford  |  Last update: January 25, 2023
Score: 4.4/5 (67 votes)

This means that even if any employee has a qualifying hardship as defined by the IRS, if it doesn't meet their plan rules, then their hardship withdrawal request will be denied.

How do you get approved for hardship withdrawal?

But, there are only four IRS-approved reasons for making a hardship withdrawal: college tuition for yourself or a dependent, provided it's due within the next 12 months; a down payment on a primary residence; unreimbursed medical expenses for you or your dependents; or to prevent foreclosure or eviction from your home.

How long does it take for a hardship withdrawal to be approved?

When you request a hardship withdrawal, it can take 7 to 10 days on average to receive the money. Usually, your 401(k) money is tied up in mutual funds, and the custodian must sell your share percentage of securities held in these investments.

Are hardship withdrawals hard to get?

Hardship Basics

A hardship withdrawal is not like a plan loan. The withdrawal may be difficult to get, and costly if you receive it. Remember, your 401k is meant to provide retirement income. It should be a last-resort source of cash for expenses before then.

Do you have to show proof of hardship withdrawal?

You do not have to prove hardship to take a withdrawal from your 401(k). That is, you are not required to provide your employer with documentation attesting to your hardship. You will want to keep documentation or bills proving the hardship, however.

Hardship Withdrawal From 401k

23 related questions found

Does my employer have to approve my 401k withdrawal?



Workplace retirement plans may allow participants to withdraw their cash in an emergency, but companies aren't required to permit this. You'll need to talk to your human resources department or your plan administrator before you proceed.

Can I take a hardship withdrawal for credit card debt?

That's up to your employer's discretion. However, even if your 401k plan does allow for hardship withdrawals, credit card debt usually doesn't qualify as a reason to make the withdrawal under hardship rules. The IRS outlines specific reasons you can make a hardship withdrawal: Paying for certain medical expenses.

Do you have to show proof of hardship withdrawal 2022?

IRS: Self-Certification Permitted for Hardship Withdrawals from Retirement Accounts. Employees no longer routinely have to provide their employers with documentation proving they need a hardship withdrawal from their 401(k) accounts, according to the Internal Revenue Service (IRS).

Why can't I take a withdrawal from my 401k?

In general, you can't take a withdrawal from your 401(k) account until one of the following events occurs: You die, become disabled, or otherwise terminate employment. Your employer terminates your 401(k) plan.

What qualifies as a financial hardship?

You are in financial hardship if you have difficulty paying your bills and repayments on your loans and debts when they are due. Under credit law you have rights when you are in financial hardship .

What documentation is needed for hardship withdrawal from 401k?

Documentation of the hardship application or request including your review and/or approval of the request. Financial information or documentation that substantiates the employee's immediate and heavy financial need. This may include insurance bills, escrow paperwork, funeral expenses, bank statements, etc.

Can an employer deny a 401k loan?

If you are a few months away from your retirement, the employer may deny the 401(k) loan to avoid the risk of default. Usually, 401(k) loans are paid back through payroll deductions, and once an employee retires, they will no longer receive periodic paychecks.

What are the requirements for a hardship loan from your 401k?

The IRS code that governs 401k plans provides for hardship withdrawals only if: (1) the withdrawal is due to an immediate and heavy financial need; (2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); and (3) the withdrawal must not exceed the amount needed ...

How many hardship withdrawals are allowed?

There are no definite limits on the number of hardship withdrawals an employee can take in a year, but they'll be limited to whether they'll be approved for one and whether their 401(k) has enough money to cover the withdrawal. Also, some 401(k) plans may have even stricter guidelines than the IRS.

What are the exceptions to the early withdrawal penalty?

Up to $10,000 of an IRA early withdrawal that's used to buy, build, or rebuild a first home for a parent, grandparent, yourself, a spouse, or you or your spouse's child or grandchild can be exempt from the 10% penalty. You must meet the IRS definition of a first-time homebuyer.

How long does it take to get 401k withdrawal direct deposit?

Depending on your bank, a 401(k) loan direct deposit will take about two or three business days for the funds to reach your bank account.

Can you take money out of your 401k during COVID-19?

The CARES Act allows qualified individuals impacted by the coronavirus pandemic to pay back funds withdrawn from a qualified retirement plan over a three-year period, and without having the amount recognized as income for tax purposes.

Can you still take a Covid withdrawal from 401k?

A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.

What are the IRS regulations regarding hardship withdrawals?

Under the regulations, a hardship distribution can only be made if the distribution is because of an employee's immediate and heavy financial need and is limited to the amount necessary to satisfy that financial need.

Is it smart to withdraw from 401k to pay off debt?

Looking back, Nitzsche says that liquidating his 401(k) to pay off credit card debt is something he wouldn't do again. “It is so detrimental to your long-term financial health and your retirement,” he says. Many experts agree that tapping into your retirement savings early can have long-term effects.

Is it smart to borrow from 401k to pay off debt?

In most cases, it's a good idea to take a 401(k) loan to pay off debt because it's the lowest-cost lending option you'll find, and you can typically use it to pay off debt fast. Just don't do it during a bull market or if you think you'll lose your job soon.

What is the difference between a 401k loan and hardship withdrawal?

401(k) loans are not to be confused with 401(k) hardship withdrawals. A hardship withdrawal isn't a loan and doesn't require you to pay back the amount you withdrew from your account. You'll pay income taxes when making a hardship withdrawal and potentially the 10% early withdrawal fee if you withdraw before age 59½.

How will I know if my 401k loan is approved?

Usually, the plan administrator will review the loan application to decide if you have sufficient balance to cover the loan you want to borrow. If you meet the requirements, your request will be approved, and the funds disbursed to your account.

What happens if I get fired and have a 401k loan?

It doesn't matter if you leave voluntarily or you are terminated. You have to pay back the 401(k) loan in full. Under the Tax Cuts and Jobs Act (TCJA) passed in 2017, 401(k) loan borrowers have until the due date of your tax return to pay it back. Prior to this, loan borrowers had 60 days to pay it back.

How long does it take to get 401k disbursement check?

Depending on who administers your 401(k) account (typically a brokerage, bank or other financial institution), it can take between 3 and 10 business days to receive a check after cashing out your 401(k).