Writing A Hardship Letter 401k Withdrawal

Normally, you are not allowed to take money out of a 401k, but some exceptions do exist. If you are undergoing serious financial hardship, the Internal Revenue Service (IRS) does offer hardship withdrawal solutions. However, to be considered, employers must also allow such a withdrawal, and you will need to write a hardship letter to prove your case as well.

Writing this type of letter is quite difficult. First of all, your employer will need to make sure that you qualify for a withdrawal under the IRS rules. Additionally, you have to be able to demonstrate that your financial hardship is not just something that is of a short-duration, but one that it is a very heavy burden for you.

It is very important that you write your letter properly. It has to be written in a formal style and there should be no grammatical or spelling errors in it. The recipient of the letter should be the person within your company who manages the retirement accounts. You must also make sure that you keep copies of any letters you send or receive. And do make sure that if you have any documents that prove your hardship, you should include (and copy) them as well.

Reasons for Qualification

Common qualification reasons include:

  • Medical expenses for self or dependent
  • Making a down payment on a primary home
  • Need to avoid eviction or foreclosure on a primary home
  • Expenses for education
  • Home repairs that are essential
  • Funeral expenses

What to Do If You Qualify

If you do qualify, you must then look at the hardship withdrawals that your employer offers and speak to your supervisor to find out to whom to address the hardship letter. There are significant legal issues to face, and deciding whether or not you will be allowed a withdrawal is complex. If your company has its own guidelines in place, they may be tougher than the federal criteria. Furthermore, you will have to pay taxes on the withdrawal, and sometimes you will have to pay a penalty on it as well.

Clearly, withdrawing from a 401k should only be done in extreme situations. It will have a significant impact both on your income today and in the future. Additionally, you may not be allowed to add new funds to your 401k for a 12 month period as a result of your withdrawal. These are all significant considerations to make.

What to Do After Sending the Hardship Letter

Once you have sent your hardship letter requesting a withdrawal, you should call them through the telephone after around one week to make sure that it has been received. In fact, it is recommended to send it through registered mail, requesting a receipt as well. However, it is important to understand that your employer is under no obligation to allow your withdrawal. Because the process is so long and complicated, it is important that you get the ball rolling as soon as you start to realize that financial difficulties may lay ahead. There is no way, in other words, that you will have a withdrawal in your account within just a few days, so it might even be too late to get you out of your hardship.

Hardship Letter 401k Withdrawal Examples

{Your Name}
{Your Address}
{Your Phone #}
{Your Account #}


To Whom It May Concern:

Please consider this a formal request for a {monetary amount} withdrawal from my 401K account due to financial hardship. At this time, I am facing {foreclosure, bankruptcy, eviction, educational termination, etc.} due to {disability, illness, medical bills not covered by insurance, etc.}.

If approved, the withdrawal will allow me to {pay my rent, afford daily expenses, stay in school, meet medical needs} for {amount of time}. This is an immediate and unbearable burden on me and my family. I have already attempted alternative options, such as {taking out a commercial loan, drawing from an IRA, etc.}, but unfortunately, {result}.

This withdrawal will save me from having to {drop out, foreclose, declare bankruptcy}. I appreciate your time and consideration with regards to my request. Attached are my financial statements, pay stubs, and loan responses.

Thank you,

{Sender Name}

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