401(k) Hardship Withdrawal Recap
- Remove funds from your 401(k) and be subject to penalties and fees
- Stunt the growth of your retirement funds and impact your ability to retire
- Provide proof of hardship, like medical insurance documents, in a complex process
You just received an enormous medical bill, signed your child up for an essential therapy your insurance doesn’t cover, or feel desperate to make your way out of debt. But there are ways to uncover emergency funds without dipping into your retirement savings.
Explore some, or all, of these options.
Contact your care provider and see if you can arrange a reasonable payment schedule. Most are able and willing to complete this process with you.
Find out if you or your loved ones qualify for government benefits. You may be able to pay for housing, health care, food, education and more, if you do.
While the funds you borrow will reduce both your paychecks and the balance you have invested in the market for retirement until they’re paid off, a 401(k) loan has no effect on your credit rating. 401(k) loans aren’t immediately taxable unless you leave your job, but are repaid with after-tax funds.
401(k) after-tax funds
There may be after-tax funds available in your 401(k). Contact your plan administrator through its website or your statement to find out what it would take to access the money.
Cash-value life insurance loan
Leave enough cash value in your policy to keep it in force, but a loan from your life insurance may have no tax ramifications and may not need to be repaid, depending on your circumstances.
If this is truly an emergency, you do have the choice to ask friends and family for help and put a plan in place to pay them back. Of course, you know the people in your life better than anyone. If this would cause more drama than relief, move to another option.
It can be tempting in a desperate moment to pay the fees and penalties of a 401(k) hardship withdrawal in order to avoid high interest rates.. But if the need is short-term, it might make sense to use and pay off a credit card instead of touching your retirement account.
Ways to plan ahead.
Home equity line of credit
Find out if you qualify for a home equity line of credit, which borrows against the value of your house. It works like a credit card with low interest rates, allowing you to access the funds you need and repay it when you can.
If you have other after-tax funds at your disposable, use them before your 401(k). Consider your savings or other bank accounts, Employee Stock Purchase Plans (ESPPs) or mutual funds. To make the best choices for your funds and your family, talk to a Voya Financial Advisor today.
- Ask about a payment plan for your medical bills
- Apply for government benefits in your state
- Ask your 401(k) and/or life insurance provider about a loan
- Talk to a financial advisor to get started
Products and services offered through the Voya® family of companies.
Neither Voya Financial® or its affiliated companies or representatives offer legal or tax advice. Please seek the advice of a tax attorney or tax advisor prior to making a tax-related insurance/investment decision.