We recently had a question from a client about taking hardship withdrawals from his retirement plan. Essentially, the question was - what are they, and how do I do it? So, here is the answer we gave:

First, if you are past age 55, and are NO LONGER working for your employer - AND you have not taken the 401k and rolled it into an IRA - then you can make withdrawals from that account without the normal 10% early withdrawal penalty that typically accompanies these accounts. This is a special rule for qualified retirement plans and does not apply to IRA's. In fact, if you roll the money to an IRA, you lose this provision and have to wait until age 59 and 1/2.

First - you must know that employers are not REQUIRED to offer hardship withdrawals - but usually they do because the plans are often "turnkey" and this feature is built in to turnkey plans. So, if you are still employed and need money from your employer retirement plan - then the simplest answer is that each plan usually has a feature to accomplish this. In many plans, you go onto the plan website, and look for "loans or withdrawals" and merely follow the procedure. If your employer plan does not have a website, or the website does is not set up to facilitate these online, then you probably have to complete a form with your HR department and/or the plan sponsor. You must certify that the Hardship withdrawal is for a purpose that falls within the allowable rules:

• To buy a primary residence
• To prevent foreclosure of eviction from your home
• To pay college tuition for yourself or for a dependent
• To pay un-reimbursed medical expenses for yourself or a dependent

Now there are also "exceptions" that do not fall into the hardship withdrawal category. They are literally as they sound - "exceptions" to the 10% penalty:

• Disability
• Death
• Medical debt for expenses that exceed 7.5% of your AGI
• A court order for alimony or child support
• You set up "substantially equal payments" for your life expectancy.

This last one - substantially equal payments - apply to IRA's too, and are known as 72t distributions. Do not try to set this up yourself, consult with a CPA or a CFP because they are complex and the penalty for messing it up is quite harsh.

I hope this gets you onto the right path. Good luck with the obstacles you are facing!

Jon Castle