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Employee Stock-Ownership Plans (ESOP)

How To Apply For A Withdrawal For Hardship

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To apply for a withdrawal from a retirement plan because of hardship, consider the following steps:

  • Step 1: Check your plan to determine whether an early withdrawal due to hardship is permitted.
  • Step 2: If hardship withdrawals are permitted, the plan will tell you how such withdrawals are defined. They may be limited to specific causes of hardship - such as medical expense or mortgage foreclosure.
  • Step 3: If you think you can qualify for one of the permitted reasons, ask the plan administrator how that type of hardship is defined. For example, if the reason is medical expense, don't be surprised if you have to present copies of medical bills for a period of time such as XXX months.

The IRS has a right to question whether you are suffering from a "hardship" within the Plan's definition. However, as a general matter the IRS seems to only check to determine if the plan has such an exception, not whether your situation fits the definition.

NOTE: Keep in mind that the amount of your withdrawal due to a "hardship" is subject to a penalty for early withdrawal, as well as being subject to ordinary income tax.

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