Earlier this year, the
Keep in mind that while most plans provide an option for hardship withdrawal for emergency medical or funeral expenses, the IRS restricts use of those funds for home purchases or tuition expenses. According to the IRS, “Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence. Expenses for the purchase of a boat or television would generally not qualify for a hardship distribution.” Then believe it or not, the IRS states a financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.
So what do you do? The first task to handle with any hardship withdrawal from a 401(k) is to check with your plan administrator. Each plan will have its own criteria for establishing the criteria under which a hardship withdrawal is allowable. Usually, plans will be more restrictive than the IRS guidance.
Also, talk to a tax professional and find the time to speak with a financial planning professional to take a look at your overall financial situation so you can possibly find alternatives to raiding your retirement. A trained planner can help you look over all the spending, saving and investment decisions you’ve made so far and seal up the leaks then you can discover whether you have smarter options to pay your child’s tuition. We’ll cover some of these ideas over the next few posts.