401k hardship withdrawl (sale, foreclosure, home)

[fishess]

trying to get 401k money I know I can only take so much, but the co. that my co. has the 401k with said that my home going up for sheriff sale is not a hardship, is it legal for them to say I can't have my own money.

[CaptainNJ]

i wouldnt put any money in a 401k above what an employer is matching. there is no benefit to a 401k and you lose access to your own money.

Retirement Plans FAQs regarding Hardship Distributions

"1. Under what circumstances can a participant get a hardship distribution from a retirement plan?
A retirement plan may, but is not required to, provide for hardship distributions. Many plans that provide for elective deferrals provide for hardship distributions. Thus, 401(k) plans, 403(b) plans, and 457(b) plans may permit hardship distributions.
If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. Thus, for example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses. In determining the existence of a need and of the amount necessary to meet the need, the plan must specify and apply nondiscriminatory and objective standards.
(Reg. §1.401(k)-1(d)(3)(i))
The rules for hardship distributions from 403(b) plans are similar to those for hardship distributions from 401(k) plans.
If a 457(b) plan provides for hardship distributions, it must contain specific language defining what constitutes a distribution on account of an "unforeseeable emergency."
(Reg. § 1.457-6(c)(2))"

[manderly6]

You may want to post this in the finance forum.

[manderly6]

Originally Posted by CaptainNJ

i wouldnt put any money in a 401k above what an employer is matching. there is no benefit to a 401k and you lose access to your own money.

It is pretax. So there certainly is some benefit.

[CaptainNJ]

Originally Posted by manderly6

It is pretax. So there certainly is some benefit.

so you get a little bit of a refund and you lose access to triple the amount of the refund. you get nothing except lost access to your own money. you can only benefit if taxes are lower when you retire, but nobody is guaranteeing that.

[tahiti]

Originally Posted by CaptainNJ

so you get a little bit of a refund and you lose access to triple the amount of the refund. you get nothing except lost access to your own money. you can only benefit if taxes are lower when you retire, but nobody is guaranteeing that.

your position unfortunately does not help the OP right now.

[CaptainNJ]

Originally Posted by tahiti

your position unfortunately does not help the OP right now.

not directly, but its a good situation for people to see why they may not want to tie up all their extra cash in retirement accounts (or almost any cash).

i did include something from the IRS web site that should be useful, so i wasnt completely unhelpful. i think the below quote tells me that its probably not illegal for the plan to deny the hardship withdrawal:

Originally Posted by CaptainNJ

A retirement plan may, but is not required to, provide for hardship distributions.

[nybbler]

Originally Posted by fishess

trying to get 401k money I know I can only take so much, but the co. that my co. has the 401k with said that my home going up for sheriff sale is not a hardship, is it legal for them to say I can't have my own money.

If you quit your job, then you can take the full distribution (less 20%) as a lump sum, though the taxes are killer.

Avoiding foreclosure _is_ one of the reasons allowed by the IRS for hardship withdrawals, so if your company plan allows for hardship withdrawals but they're just arbitrarily denying it, you may be able to do something less drastic.

Here's the IRS page on hardship withdrawals:
Retirement Plans FAQs regarding Hardship Distributions

The important part is right here: "If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. Thus, for example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses. In determining the existence of a need and of the amount necessary to meet the need, the plan must specify and apply nondiscriminatory and objective standards."

So you need to look at the plan documents (your HR department should have a copy if you don't) and find the specific criteria made for determination of hardship. If they don't include losing your home, you're stuck; you can only get that money by leaving your job. If they do, citing them chapter and verse of their own documents might get them to reconsider, but if not you might need a lawyer.

[TechGromit]

Originally Posted by CaptainNJ

i wouldnt put any money in a 401k above what an employer is matching. there is no benefit to a 401k and you lose access to your own money.

I disagree, I contributed about 30k to my 401k over the years and it's worth over 100k now. Compounding interest can not be beat, while it true you can't get access to your money until you reach retirement age, that's what it's really for. If not 401k, what is your retirement plan? Work till you die? Collect Social Security and move into a trailer park?

[CaptainNJ]

Originally Posted by TechGromit

I disagree, I contributed about 30k to my 401k over the years and it's worth over 100k now. Compounding interest can not be beat, while it true you can't get access to your money until you reach retirement age, that's what it's really for. If not 401k, what is your retirement plan? Work till you die? Collect Social Security and move into a trailer park?

you are compounding your tax liability also, that evens it out. it may look like you have more money in that account, but you dont have any more actual money than if you put it in a normal account. thats a funny trick though, they tell you how you are compounding pretax money as if it makes any difference. also, there is no certainty as to what future tax rates will be and how your savings will impact your social security and medicare benefits. it is highly likely that if you are one of the rich people that saved up a nice amount of money in your 401k, your social security will be impacted if it is means tested in the future. there is also a good chance tax rates will be higher in the future, which will hit your distributions. i would also expect capital gains tax rates to equal income tax rates.

my retirement plan is to save as much money as i can for retirement. you dont need a 401k to save money. i do think a 401k is a good thing because it forces people to save that otherwise wouldnt. but its a trick to believe that you get any benefit from it (other than if your employer matches your contribution). for someone who doesnt need to be forced to save (me), its pointless to lock my money away from myself.