401k hardship distribution

[swalsh411]

I think it's crap that you can't access your money for whatever reason and just pay the damn penelty and be done.

So basically you necroposted in order to state you don't think the rules are fair?

It doesn't really matter what you think. When you put money into the plan you agreed to the terms. If you don't like the terms there are other investment vehicles you could choose from.

 

[Beth3]

I think it's crap that you can't access your money for whatever reason and just pay the damn penelty and be done.


Sure it's your money but when you signed up to contribute to a 401(k) Plan, you also agreed to abide by the rules of the road that Congress legislated for such retirement plans. In exchange for being able to contribute tax-deferred money presently, you are limited to when and why you can access it. That's just the way it works.

The IRS doesn't monkey around. Good luck to you if they figure out the fraud - I expect they'll come down hard.

 

[tranquility]

The IRS doesn't monkey around. Good luck to you if they figure out the fraud - I expect they'll come down hard.

Nope. As davew128 said, they won't care. Really. They don't. (At least against the person who took the non-qualified distribution.)

Now, the OP may have a problem with his company and the company, if they knew, may have a problem, but not the one taking out the money. All he has to worry about is the financial penalty.

(The forms he filled out for the early distribution could be a problem to the OP, but the IRS is not the people who will care.)

 

[Willlyjo]

Hardship Withdrawal

When you get a Hardship Withdrawal from your 401(k) plan, you have to prove what the hardship is before they will allow you to make such withdrawal! If you can prove such hardship in the paperwork (documentation) you submit, then you will be able to make such withdrawal. Once you make the withdrawal, you are free to spend it anyway you want. There are no consequences other than the early withdrawal penalty and taxes.

 

[Willlyjo]

I think it's crap that you can't access your money for whatever reason and just pay the damn penelty and be done.


Sure it's your money but when you signed up to contribute to a 401(k) Plan, you also agreed to abide by the rules of the road that Congress legislated for such retirement plans. In exchange for being able to contribute tax-deferred money presently, you are limited to when and why you can access it. That's just the way it works.

The IRS doesn't monkey around. Good luck to you if they figure out the fraud - I expect they'll come down hard.

Some employers have 401(k) plans that allow the employee to borrow against the amounts in their 401(k) account and payments are made via disbursements from their wages. I was able to do this and I'm sure more and more companies have this arrangement.

 

[tranquility]

While not so much in the last few years, we used to have clients take a loan just to be able to pay it back with interest. (Increasing the amount in the account.)

 

[Beth3]

Some employers have 401(k) plans that allow the employee to borrow against the amounts in their 401(k) account and payments are made via disbursements from their wages. I was able to do this and I'm sure more and more companies have this arrangement.

True. But many employers' Plans do not because it's a total pain in the fanny for the company to administer a 401(k) loan program. (Everywhere I've worked did not allow loans for that very reason.)

 

[davew128]

So it is your position that despite the fact that the IRS set up very strict regulations as to what a hardship withdrawal can be used for, they don't care whether those very strict regulations are followed or not?

I'm responding to this nearly year old post just to get the last word in.

Quite frankly? You're wrong. Those regulations were not issued by IRS. The rest of your "I know someone who is a big shot" speech was meaningless. When Romneycare was instituted in Massachusetts, yours truly was the guy the people fighting it went to, and while I pointed out that the employer mandate was a blatant violation of ERISA (and pointed to the Wal-Mart case as most recent precedent) , I also pointed out that they would have difficulty in finding an employer who was being harmed AND had the deep pockets to litigate the issue.