401(k) hardship withdrawal as a possible debt solution
It’s not unusual for individuals and families in Florida and throughout the United States to be only one paycheck away from missing important payments to creditors. Unexpected situations, such as the loss of a job, a reduction in pay or a large expense, can exact a domino effect that can make it can it difficult to catch up with obligations when circumstances improve. One possible lifeline is a 401(k) hardship withdrawal.
While there are benefits to filing for bankruptcy under Chapter 13, it’s not a step everyone wants to take. A 401(k) hardship withdrawal comes from an individual’s employer retirement savings account. In order to take advantage of this option, the funds must be used for specific causes. Acceptable reasons for withdrawal include medical bills, preventing foreclosure or eviction, tuition payments and funeral expenses.
Individuals opting for 401(k) hardship withdrawals must have the resources available to repay the funds. Some plans consider the withdrawal a loan while others place added limitations on what the funds can be used for. The amount that can be used is limited to the total amount an employee has contributed to his or her 401(k) at the time of the withdrawal. Withdrawn funds must be included in tax filings. Additionally, some employers may not allow employees to contribute to employer-supported plans for several months after completing a 401(k) hardship withdrawal.
A lawyer with an understanding of bankruptcy laws and debt issues can help individuals experiencing financial difficulties explore their options and explain the possible advantages and disadvantage of opting to do a 401(k) hardship withdrawal. An lawyer may also be able to stop debt-related lawsuits and make mutually acceptable arrangements with creditors. Seeking legal advice as soon as debt problems start often allows individuals to explore their options, such as retirement savings withdrawals and bankruptcy, with more clarity.