Good Morning,
My stepfather passed away in Germany where he went to live for half the year since he retired. I don't have much proof besides the bill in german for this….. its roughly ~15k and would like to withdraw that amount. Any advice on if i submit this and have an audit or anything? Or can I go about this differently to pay the taxes upfront/fees? Thank you
Hardship withdrawal 401k – Funeral
byu/No_Salamander2568 intax
Posted by No_Salamander2568
1 Comment
Most employers are happy to accept your word for whether you qualify for a hardship withdrawal; they don’t have a high standard of proof for that.
But a hardship withdrawal has no special tax treatment – you’re still taking money out of your retirement account. If it’s a pre-tax account, like a traditional 401k (as opposed to a Roth 401k), you’ll owe normal income tax on the distribution. If you’re not yet 59.5 years old, then you’ll also owe an additional 10% penalty – a hardship withdrawal does not avoid that.
You likely could claim the emergency personal expense exception, which lets you avoid that 10% penalty on the first $1000 you take out. But you’ll still owe normal income tax on that $1000, and you’ll still owe normal income tax + 10% penalty on the other $14k.
I recommend looking at other ways of paying for this. One option would be to take a loan from your 401k – this is not taxable, and you pay the loan back with some of each paycheck (paying back the loan instead of making contributions). However, if you stop working for that company before the loan is paid off, the remaining balance on the loan is treated as a distribution, so there’s still some risk.
If you do want to proceed with the 401k distribution, look at your last tax return and see what your marginal tax bracket was – you want them to withhold that percentage + another 10% in federal income tax. You’ll also want to read up on how much you’ll need them to withhold for state income tax, if you live in a state with income tax.