How to Make Withdrawals From a 401k Due to Permanent Disability

When it comes to living the life, the unexpected can throw a big wrench into the future. And when someone has an accident or is diagnosed with a condition that gives them a permanent disability, it can be quite scary when it comes to paying the bills. Well, if you have a permanent disability you can withdraw from your 401k early and get the money you need.

Instructions

Difficulty: Moderately Easy

1. Receive proof of your permanent disability. Some disabilities are quite obvious, while others, such as mental health issues, may fall into a gray area. Get paperwork from the appropriate professional who concurs with your opinion that you have a permanent disability. Hang onto this paperwork, as you will need to copy it for several entities.
2. Contact your 401k company and ask about the policy on how to receive early withdrawals for a permanent disability. They will send you paperwork to fill out which will include you needing to provide that proof of your disability. Otherwise, they will have to asses the 10 percent penalty the IRS requires for an early withdrawal.
3. Create a realistic budget for living on simply which you and your family need, and not what you want. Most people have the luxury of saving for 40 or 50 years until retirement at which point they can live on their nest egg. You are in a different position where you may need to live off that money twice as long as the average person plans for in retirement. Creating a frugal budget will allow the money to last longer.
4. Withdraw only what you need. It can be quite tempting to access the money over and over again. But you can always go back to 401k company and make another money withdrawal if you need it. Preserve your capital as long as possible.
5. Replace the money that you have withdrawn. You can receive permanent disability for a line of work and then several years later retrain yourself to work in another field. Obviously, in the interim, you needed the other money to survive. An example would be if you can no longer work construction because of a terrible accident that sidelined you for a while. Retrain yourself to work from home in front of your computer.

Tips & Warnings

• Be prepared for an inquiry from the IRS if they notice the withdrawal without the penalty. Don't be afraid of them, merely provide your documentation that states the case. If you are permanently disabled, then you in the right and have nothing to worry about.