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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6231
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Hello, Im not sure exactly who to send this to, Tax

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Hello,
I'm not sure exactly who to send this to, Tax or Irs as both apply, anyhow here is the question. My Current home was hit with Termites & Mold(would cost more to fix then it is worth, & Still paying off that loan)
I am trying to get a Hardship Withdrawal from my (Kroger) Merrill Lynch 401 K account, They approved me with no issue there, Now Since I am not 59½ There is a penalty fee, not by them as it is for a Primary Purchase of a home in which they consider a hardship, But Irs that seems to be Yes & No answer. I know I have to pay taxes on anything I take out, but do they not consider purchase of Primary residence a hardship & wave the early withdrawal penalty? One article said yes. one said no.
I already have 2 loans out now, & even with a hardship from my 401 k will end up with a third. To cover taxes alone will take close to 15 % then if I get penalized on top of that it would be another 10% if you take 25% away from what you are getting that leaves nothing for the home. so in short. would IRS hit me with the penalty or No? Thanks for the help, sorry for the long message, just trying to explain the best I can.
Thanks again Tom

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

As you have correctly determined, you have qualified to make a hardship withdrawal from your 401-K for the purchase of your home.

Stephen G :

However, although that is permitted, since you are under 59 1/2, you would be subject to the 10% early withdrawal penalty.

Stephen G :

Now you understand that the penalty applies to the hardship withdrawal, but if you were able to borrow the money from your 401-K plan, there would be no tax & no penalty. Of course the loan would have to be paid back.

Stephen G :

Here's a link to an excellent article which explains this & other ramifications to Hardship Withdrawals:

Stephen G :

http://www.401khelpcenter.com/401k_education/hardship_withdrawal_article.html#.Ufr0i21bhX4

Customer:

I understand that as I already have a loan through Merill Lynch, but even If I waited , Paid it off, & re did a loan from them it would max out @ 50 k. I am looking or needing at least 70 k to keep my payment low enough to afford all loans, the length of time to pay loan back to them is short as well.

Stephen G :

I understand. Unfortunately, you will be subject to both the early withdrawal penalty and the income tax on the withdrawal.

Customer:

Thats what I need to know, Thanks.

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