Question:
Is it possible to cancel my 401(k) without showing hardship?
Response:
Paddy Hirsch Aug 14, 2012 Senior Editor, Marketplace
Hi Curtis. The answer is, yes, you can. But…
This from TurboTax:
Unfortunately, you could pay a big price for withdrawing your funds: You will owe income tax on the amount you withdraw, just as you would had you withdrawn it in retirement. And, if you are under age 59-1/2 years old, you will probably have to pay a 10 percent early withdrawal penalty that’s included as part of your income taxes.
This from 401kcalculator.org:
- You have several options regarding your 401(k) plan when you change employers.
- You can choose to rollover your 401(k) account to your new employer’s 401k by telling your plan administrator. You will also have to complete some paperwork.
- You can also elect to leave your 401k plan with your former employer, although this is not always recommended.
- Your third option is to rollover your 401k into a new retirement savings plan such as an IRA.
This from TurboTax on the hardship issue:
- Some plans let you withdraw money outright for certain financial and medical hardships before you reach that age, although they are not required to do so.
- You can take a 401(k) hardship distribution if your plan allows it and you have what the IRS calls “an immediate and heavy financial need.”
- Depending on your plan’s rules, the following needs could qualify:
- Payment needed to prevent eviction from, or foreclosure on, your principal residence.
- Certain medical expenses
- Burial or funeral expenses
- Cost of repairing damage to your principal residence
- Cost of purchasing your principal residence
- Tuition and related educational fees and expenses
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