Many businesses, families, and individuals are seeing personal financial impacts from the COVID-19 pandemic. Individuals facing difficult choices about paying their bills are asking their employers if they can withdraw from their 401(k).
Typically, assets can only be taken from a retirement plan at separation of service, most commonly at retirement. An important exception is for a hardship. Many retirement plans allow for hardship withdrawals for an immediate and heavy financial need. The IRS has certain safe harbor definitions of what meets such immediate need. These include:
- medical care for the employee, employee’s spouse, or dependents
- payments necessary to prevent eviction or foreclosure of the employee’s primary residence.
The withdrawal is limited to the amount necessary to cover the immediate need, and that cannot be reasonably obtained from other sources. An employer can rely on the employee’s written statement of the circumstances unless the employer has actual knowledge to the contrary.
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