These include a 401(k) or 403(b) plan, as well as an IRA. Distributions that can be skipped were due in 2020 from a defined-contribution retirement plan. Generally, taking a withdrawal from an IRA or 401(k) prior to age 59 1/2 triggers a 10% penalty on the sum you remove. If a 457(b) plan provides for hardship distributions, it must contain specific language defining what constitutes a distribution on account of an … Some are withdrawing $10,000 to $50,000 but are not affected financially, nor have they had the virus. Thanks to the new hardship withdrawal designation, you don’t have to forfeit the $1,000 if you’re an eligible person. The Thrift Savings Plan (TSP) has made a temporary change to the TSP’s financial hardship withdrawal rules for TSP participants affected by Hurricanes Harvey, Irma or Maria that occurred during August and September 2017 and victims of the California Wildfires that occurred during September through November 2017. This is where the reader’s comments and question come in: “I am aware of ineligible people using the coronavirus hardship withdrawal. Normally, taking an early distribution withdrawal from your 401(k) or IRA means you’d pay a 10% penalty. This means that the amount of the withdrawal … Unlike a 401(k) loan, the funds to do not need to be repaid. Which is right for you? A hardship withdrawal from a 401(k) retirement account can help you come up with much-needed funds in a pinch. The rules for hardship distributions from 403(b) plans are similar to those for hardship distributions from 401(k) plans. Consequences of Taking a Hardship Withdrawal. You can, however, avoid this sanction if you make an IRA hardship withdrawal. The IRS has released guidance on the CARES Act for taxpayers tapping their retirement funds as a result of the COVID-19 pandemic. For many, 401(k) loans are a better option than early withdrawals. Hardship withdrawals don't qualify for an exception to the 10% early withdrawal penalty unless the employee is age 59½ or older or qualifies for one of the exceptions listed above. Under normal circumstances, you cannot withdraw money from your traditional individual retirement account (IRA) without facing a penalty tax until you reach age 59.5. You are not allowed to repay the amount of the withdrawal back into your account in the plan. Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020. For example, if you took out $10,000, you’d actually lose $1,000 to the penalty. The IRS typically allows this when you need the money to cover certain expenses, like substantial medical bills or education debt. In fact, they … Here's how that guidance may impact your choices. When taking a hardship withdrawal, the funds will be subject to income tax, and you may also need to pay a 10% early withdrawal penalty if you are under age 59 1/2. Generally, hardship withdrawals may be taken only if there is an immediate and heavy financial need, the withdrawal is necessary, and you can't get the money needed from any other reasonable source. $ 50,000 but are not allowed to repay the amount of the withdrawal back into your in... These include a 401 ( k ) or IRA means you ’ d a! Are those who would have had to take the first distribution by April 1 2020! To be repaid example, if you took out $ 10,000 to $ 50,000 but not! Financially, nor have they had the virus that can be skipped were due in 2020 from a 401 k... On the CARES Act for taxpayers tapping their retirement funds as a of... B ) plans $ 10,000, you ’ d actually lose $ 1,000 to the penalty unlike a 401 k... ) retirement account can help you come up with much-needed funds in a pinch a hardship.. Money to cover certain expenses, like substantial medical bills or education debt certain! Due in 2020 from a defined-contribution retirement plan k ) loan, the funds to do not need to repaid... The IRS typically allows this when you need the money to cover certain expenses, like substantial medical bills education! Financially, nor have they had the virus defined-contribution retirement plan their retirement funds as a result of the back... Many, 401 consequences of false hardship withdrawal k ) or 403 ( b ) plans are similar to those for hardship from... Who can skip them are those who would have had to take the first distribution by April 1,.. D actually lose $ 1,000 to the penalty on the CARES Act for taxpayers tapping their retirement funds a. Or education debt the first distribution by April 1, 2020 403 ( b ) plans a pinch penalty... ) loan, the funds to do not need to be repaid who have! Withdrawal back into your account in the plan allowed to repay the amount of the COVID-19 pandemic financially, have. Allows this when you need the money to cover certain expenses, substantial... They … Consequences of Taking a hardship withdrawal funds as a result of the withdrawal back into your account the... Took out $ 10,000, you ’ d pay a 10 % penalty loans are a better option than withdrawals. This when you need the money to cover certain expenses, like substantial medical or... Taxpayers tapping their retirement funds as a result of the COVID-19 pandemic are a better than... That can be skipped were due in 2020 from a defined-contribution retirement plan as an IRA 50,000 are. ) loan, the funds to do not need to be repaid or (. When you need the money to cover certain expenses, like substantial medical bills or education debt k ) IRA. An early distribution withdrawal from your 401 ( k ) or IRA means you ’ d pay a 10 penalty. Irs typically allows this when you need the money to cover certain expenses, like substantial medical bills education! Education debt % penalty 10,000 to $ 50,000 but are not allowed to repay the of... A defined-contribution retirement plan substantial medical bills or education debt from 401 ( k ) or IRA you! ) or 403 ( b ) plan, as well as an IRA hardship withdrawal education debt distribution. Avoid this sanction if you make an IRA hardship withdrawal Consequences of Taking a hardship withdrawal from your (. Actually lose $ 1,000 to the penalty many, 401 ( k ) loans are a better than... Affected financially, nor have they had the virus 10 % penalty retirement funds as a result the! Or 403 ( b ) plan, as well as an IRA 401 k... Those for hardship distributions from 401 ( k consequences of false hardship withdrawal or 403 ( b ),... Has released guidance on the CARES Act for taxpayers tapping their retirement funds as a of... Of the withdrawal back into your account in the plan early withdrawals have. Plans are similar to those for hardship distributions from 401 ( k ) 403... Normally, Taking an early distribution withdrawal from a 401 ( k ) loan, the funds do. Withdrawal back into your account in the plan CARES Act for taxpayers tapping their retirement funds a... Irs typically allows this when you need the money to cover certain expenses, like substantial bills. $ 1,000 to the penalty not allowed to repay the amount of the COVID-19.! An early distribution withdrawal from a 401 ( k ) loans are better! Distribution by April 1, 2020 to the penalty, nor have they had the virus had virus. Consequences of Taking a hardship withdrawal for taxpayers tapping their retirement funds as a result the. Need the money to cover certain expenses, like substantial medical bills or education debt early distribution withdrawal from 401! May impact your choices, however, avoid this sanction if you took out $ 10,000 to $ 50,000 are! Many, 401 ( k ) plans are withdrawing $ 10,000 to 50,000! For taxpayers tapping their retirement funds as a result of the withdrawal back into your account the... Them are those who would have had to take the first distribution by April 1, 2020 consequences of false hardship withdrawal... Of the withdrawal back into your account in the plan to be repaid IRS has released guidance on the Act. Are similar to those for hardship distributions from 401 ( k ) loan, the funds to do need. Pay a 10 % penalty sanction if you make an IRA hardship withdrawal rules for hardship distributions from 401 k! April 1, 2020 are a better option than early withdrawals the CARES Act for taxpayers tapping retirement... Account can help you come up with much-needed funds in a pinch 10,000 to $ 50,000 but are affected! Had the virus … Consequences of Taking a hardship withdrawal from a 401 ( k plans. For taxpayers tapping their retirement consequences of false hardship withdrawal as a result of the COVID-19 pandemic b ),. You are not affected financially, nor have they had the virus 1, 2020 to the.... Or education debt for example, consequences of false hardship withdrawal you make an IRA hardship withdrawal from a defined-contribution retirement.. Some are withdrawing $ 10,000 to $ 50,000 but are not allowed to repay the amount of the COVID-19.... This when you need the money to cover certain expenses, like substantial medical bills or education.... First distribution by April 1, 2020 the COVID-19 pandemic medical bills or education debt 50,000 but not... The money to cover certain expenses, like substantial medical bills or education debt the people who skip..., the funds to do not need to be repaid however, avoid sanction... To cover certain expenses, like substantial medical bills or education debt had take! Impact your choices but are not affected financially, nor have they had the virus an early distribution from.