In the event of an emergency, the hardship withdrawal may be taken out without you having to deal with penalties. These hardship withdrawals make sense when you come across economic emergencies, such as paying medical bills, college fees, or funding the down payment for your first home. That being said, while you don’t have to pay penalties, you’ll still have to pay income tax.
Hardship withdrawals can only be given from an elective deferral account if the person meets the following conditions:
They need the money for heavy yet immediate financial issues.
They limit the withdrawal only to the necessary amount needed to satisfy the financial issue, bringing proof of it.
If it turns out that you are eligible, you need to provide the paperwork that was asked of you. These documents will depend on your employer, as well as the reason why you are making the withdrawal in the first place.
Once you have submitted all of the documents, you will receive a check with the sum – with the hope that you won’t be required to pay a penalty. Sometimes, what you see as an emergency may not look the same to them, in which case you will have to pay a 10% penalty.
Occasionally, if you leave the place of employment or you try to make the withdrawal in the year after you turn 55, you might not be required to pay the 10% penalty. There are other ways to avoid that penalty, in which case you should do some research.