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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am getting a hardship withdrawal from my 401k for home repairs.

Customer Question

I am getting a hardship withdrawal from my 401k for home repairs. If I take out more than what is needed what will happen to that excess?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

Hello scottc,


The IRS has a provision for employers to provide for a safe harbor withdrawal from a 401k plan if there exits an immediate and heavy financial need or burden. The only money exempt under the safe harbor rule is that which is used to satisfy that immediate and heavy financial need. According to the IRS the safe harbor hardship withdrawals from a 401k plan are limited to:

  • Money used to pay certain medical expenses for you, your spouse, or any of your dependents.
  • Payments of specific post-secondary education expense for the next year for you, your spouse, or any of your dependents.
  • The purchase of a primary residence.
  • Money needed to prevent eviction or foreclosure on your primary residence.

Any money which you take from your 401K which is classified as a hardship withdrawal should be used for one of the above purposes. If it is not used for that purpose, or if you withdraw money in excess of your needs, the IRS can enforce additional penalties if it is discovered through an audit that the money was withdrawn under false pretenses or if money in excess of what was needed was withdrawn and not used.



Thank you.


Customer: replied 8 years ago.
What kind of penalties would I be looking at. Only if an audit is performed could they do this?
Expert:  Merlo replied 8 years ago.

Hello again scott,


The penalties could be up to an additional 10% of your total withdrawal, or the excess withdrawal not used for a hardship purpose.


The IRS could impose these penalties under any circumstances, however, it is not likely that an withdrawal used for another purpose would be discovered other than through an audit. Once you are approved for the withdrawal, you are not required to show proof of how the money was spent. So unless you have an audit somoewhere down the line, then it would likely not be an issue. In the event of an audit, you may need to show that the money was used for one of the hardship purposes.



Thank you.


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