Under IRS rules, hardship withdrawals are subject to taxes and penalties, as described below:

Type of Hardship WithdrawalSubject to Ordinary Income TaxSubject to Penalty Tax for Early PaymentEligible for Rollover
Pre-tax 401(k)
Contributions only; earnings may not be withdrawn
Roth 401(k)
Contributions only; earnings may not be withdrawn
Yes, except for a “qualified” distributionOnly if taxableNo

Timing of Withdrawal

The Program will send the participant a check in care of the firm, via overnight delivery, within two business days after the request is processed.

These are general tax guidelines. You should always direct participants to seek tax advice from their legal or tax advisor.

Hardship Withdrawals from Roth 401(k) Contributions

Special tax consequences apply to hardship withdrawals from Roth 401(k) contributions. The taxation of a hardship withdrawal from Roth 401(k) contributions depends on whether or not the withdrawal is a qualified distribution. “Qualified” distributions from Roth accounts are fully excludable from gross income. To be qualified, the distribution must be made after:

  • The participant has reached age 591⁄2, become disabled, or died, and
  • The Roth account has been maintained for at least five years.

In all other cases, the distribution is nonqualified. Nonqualified distributions are treated partly as a tax-free return of contributions and partly as taxable investment earnings.

If withdrawals are distributed before age 591⁄2, the taxable portion of the payment is subject to an early distribution 10% tax penalty. This extra tax does not apply to the payment if the participant is:

  • At least age 55 when separated from service,
  • Terminated due to disability,
  • Paid in equal (or almost equal) payments over the life expectancy of the participant or joint life expectancy of the participant and beneficiary,
  • Using the payment to cover certain medical expenses that can be deducted on a tax return, or
  • Deceased.