How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Jacy Your Own Question

Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
50725912
Type Your Tax Question Here...
Jacy is online now
A new question is answered every 9 seconds

I am unemployed and considering a hardship withdrawal from

Resolved Question:

I am unemployed and considering a hardship withdrawal from my 401K to pay off the mortgage on my primary residence (140K). Will I be subject to a penalty tax? I will not have any other income on my 2010 income tax report.
Submitted: 3 years ago.
Category: Tax
Expert:  Jacy replied 3 years ago.
Chat Conversation Started
Jacy :

Hello,

Customer :

Hello

Jacy :

Unfortunately, yes. You will owe income tax plus the 10% penalty on the withdrawal, unless you qualify to one to the exceptions.

Jacy :

Some of the exceptions are total disability, medical expenses over the 7.5% of income, death, or divorce.

Customer :

I read the irs.gov document and it mentions that a hardship would include purchase of a primary residence. The withdrawal I have in mind would allow me to purchase my home from the bank (pay off mortgage) and would avoid a situation of possible forclosure

Jacy :

I would have to check if that would qualify as a purchase. The exception to the penalty for the purchase of a home only applies to IRA withdrawal, not 401k.

Jacy :

If you are familiar with IRS.gov, search "hardship distributions" and read the Retirement Topics - Hardship Distributions. Near the bottom of the page it says if it is an early distribution, it is subject to the penalty.

Customer :

Here is the wording from IRS that I'm looking at: Exceptions. The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:




  • Made to a beneficiary (or to the estate of the participant) on or after the death of the participant,



  • Made because the participant has a qualifying disability,



  • Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.),



  • Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55,



  • Made to an alternate payee under a qualified domestic relations order (QDRO),



  • Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions),



  • Timely made to reduce excess contributions,



  • Timely made to reduce excess employee or matching employer contributions,



  • Timely made to reduce excess elective deferrals, or



  • Made because of an IRS levy on the plan.



  • Made on account of certain disasters for which IRS relief has been granted.


Customer :

whoops - ignore that - here is what I meant to send:




  • Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;



  • Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);



  • Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents;



  • Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;



  • Funeral expenses; or



  • Certain expenses relating to the repair of damage to the employee’s principal residence.



I may have just answered my own question - looks like I was misinterpreting the conditions that allow withdrawal with those req'd to avoid penalty

Jacy :

That's what I was trying to explain. The rules for getting the distribution are different from the rules for exception to the penaly.

Customer :

thank you

Jacy :

Thanks for using Just Answer. Let me know if you need any more help.

Customer :

can you verify whether I would qualify for a hardship withdrawal if funds were going to pay off my mortgage? Again - I am unemployed and although I still have savings that I'm using to pay my mortgage, I would like to use 401K to pay off the mtg, save 113K in interest over the life of the loan. With 30% (tax + penalty) it will cost about 42K, which nets me a savings of 71K and keeps me from loosing the house if I can't get an adequate paying job soon.

Expert:  Jacy replied 3 years ago.
What Happens Now?

Your chat has ended, but you can still work with your Expert to get an answer to your question if you have not yet received one.

Come back to this page at any time to see additional information from your Expert.  You will also receive an email when your question is updated.  If you want to send a message to your Expert, use the box below.

If you have already received a satisfactory answer to your question, click the Accept button above.  Experts are credited for each accepted answer they provide.
Expert:  Jacy replied 3 years ago.

Hello,

 

I'm not sure if you received my previous answers, the chat function appears to be stalled.

 

Anyway, you do qualify for a hardship withdrawal and the amount of tax a penalty owed on the withdrawal can be included as part of you hardship need. Your plan administrator will tell you what they need to consider the distribution.

 

If it is possible to take a total distribution due to separation from service, this may be the better way to go. The funds available for a hardship are limited to employee contributions and cannot include earnings or employer contributions.

 

Please make sure the 30% will be enough to cover your tax and penalty. I can't calculate this without knowing more about your situation.

 

I hope this has been helpful to you.

 

If I have adequately answered your question,
please click the GREEN ACCEPT button so that I receive credit for my work.

If you need more information after clicking ACCEPT, please do not hesitate to click Reply and I will be happy to help you further. Thanks!

Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience: Nine years individual income tax preparation and consulting
Jacy and 3 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.