How to Get Approved for a Hardship Withdrawal
Retirement accounts are designed to be accessed after the Internal Revenue Service threshold age of 59 1/2 or older. Withdrawals taken prior to the threshold are penalized 10 percent over and above any income taxes owed on the distribution. In spite of the taxes and penalties, there are times when it might be necessary to access the funds from retirement accounts. If the distribution is a hardship distribution, the 10-percent penalty is waived. However, what is considered a hardship for you is not necessarily a hardship by IRS standards.
Other People Are Reading
Instructions
-
-
1
Review the IRS-eligible hardship exceptions. Using retirement funds for unreimbursed medical expenses that are more than 7.5 percent of your annual income is one exception. Distributions paid to a disabled person also qualify as a hardship. Using retirement funds to prevent foreclosure or eviction is another hardship distribution. You can also use retirement funds to pay medical insurance premiums if you have lost your job.
-
2
Keep all receipts related to the hardship expense. Retirement plan administrators rarely request documentation, but the IRS may conduct an audit and you would have to produce your proof of hardship eligibility.
-
-
3
Complete all forms required by your retirement plan custodian for an early distribution. Indicate the hardship on the form. If there is no box to check, write "hardship" next to the distribution amount. Your hardship exception will only be valid for amounts equal to or less than the receipts you have.
-
4
File a Form 5329 with your personal tax returns. Form 5329 records early distributions, notes the hardship claimed and calculates any penalties for taking out funds not exempt.
-
1
Tips & Warnings
Using $10,000 for a first home purchase and using funds to pay for college expenses are not necessary considered hardships but are eligible for the exception also.
References
- Photo Credit Ablestock.com/AbleStock.com/Getty Images
