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, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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: 6 years ago.
Category: Tax
Expert:  Jacy replied 6 years ago.
Chat Conversation Started
Jacy :


JACUSTOMER-dyrm5d35- :


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.

JACUSTOMER-dyrm5d35- :

I read the 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, 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.

JACUSTOMER-dyrm5d35- :

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.

JACUSTOMER-dyrm5d35- :

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.

JACUSTOMER-dyrm5d35- :

thank you

Jacy :

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

JACUSTOMER-dyrm5d35- :

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 6 years ago.



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 and other Tax Specialists are ready to help you