Hardship Withdrawal From an IRA

Wednesday, June 01, 2011

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

Let me start out by saying there is no such thing as a hardship withdrawal from an IRA.

An IRA owner generally has unlimited access to their IRA funds for any reason whatsoever (unless they are in an investment that limits their access). There is no age restriction on taking a withdrawal from the IRA. So, there is no need to prove a hardship.

BUT, if you do take a withdrawal before you are age 59 ½, then there is an extra tax to pay. You will owe an additional early distribution penalty which is 10% of the taxable amount withdrawn. There are some exceptions to the 10% penalty. You can find a complete list of these in IRS Publication 590.

There is a hardship withdrawal provision for most employer plans such as 401(k)s. The plan must allow such a withdrawal. However, a hardship withdrawal is still subject to income tax and the 10% early distribution penalty if the employee is under the age of 59 ½ at the time of the withdrawal. The hardship exception merely allows you to access plan funds that you normally could not access. It does not get you out of paying taxes and the early distribution penalty, if applicable.

If you are under the age of 59 ½ and you think you may need to tap your retirement funds early, check out the exceptions to the penalty. You might find you can avoid some, or all, of the penalty. Be careful. Some exceptions apply to IRAs only and some to plans only. You can find IRS Publication 590 on the IRS website, www.irs.gov. On the left hand side of the screen, click on Forms and Publications. Best of all, it is free.

 

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