If you find yourself in a financial bind, or if you are retiring, you may be need of money. Depending on your circumstances, you may be able to disperse money from your 401k plan. You can always remove money if you are older than 59 1/2 or after you leave your job. Your plan may also permit you to disperse money in times of qualifying financial hardships. Financial hardships vary from plan to plan, with some including high medical expenses, funeral costs or money to avoid eviction.
1. Submit any documentation required by your 401k plan rules to document your hardship distribution if you need to disperse money from your 401k plan for a severe financial hardship. If you are taking a distribution due to leaving your job or because you are 59 1/2 years old, no documentation is required.
2. Request a distribution for the amount you want dispersed from your 401k plan by filling out a 401k plan withdrawal request form from your plan administrator.
3. Fill out Form 5329 if you are not yet 59 1/2 when you take the distribution because your dispersal of 401k funds is subject to a 10 percent early withdrawal penalty. A financial hardship does not automatically waive the penalty. Only certain exceptions, such as medical expenses over 7.5 percent of your adjusted gross income or retiring after age 55, allow you to avoid the penalty.
4. Report the amount of your 401k plan distribution on your income taxes. If you owe an early distribution penalty, you must use Form 1040. If not, you can use Form 1040 or Form 1040A. The 401k plan distribution counts as taxable pension and annuity income.
5. Add the amount withheld for federal income taxes, if any, from your 401k plan distribution to any other federal income taxes withheld and report the total as your federal income tax withholding on your tax return. You can find the amount withheld on your Form 1099-R for your 401k plan withdrawal.
Items you will need
- IRS Form 5329
- IRS Form 1040 or Form 1040A
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