401(k) Hardship Withdrawals at 10-Year High

401(k) Hardship Withdrawals at 10-Year High

The Associated Press is reporting that new applications for hardship withdrawals from 401(k)s have reached a 10-year high, according to a report issued by Fidelity Investments. The report cited increasing applications for unemployment benefits, large cuts backs in overtime, and reduced take-home pay for the spike.

"People tend to be taking home less," said Beth McHugh, Fidelity's vice president of marketing insight. "As a result the percentage of individuals initiating hardship distributions is one of the things we're concerned about."

To be eligible for a 401(k) hardship withdrawal, individuals must: “demonstrate an immediate and heavy financial need, according to IRS regulations. Certain medical expenses; costs relating to the purchase of a primary home; tuition and education expenses; payments to prevent eviction or foreclosure on a primary home; burial or funeral expenses; and repair of damage to a primary home meet the IRS definition and are permitted by most 401(k) plans.”

Interesting to note is that the government places a 10% early withdrawal fee for those under 59-1/2 years of age, which is in addition to normal income taxes.

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