Anne Tergesen

speaker

4,485 appearances 83 recordings 1 series first heard Jul 2017 last heard Feb 2025

Anne Tergesen’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · Americans Are Drawing From Their 401(k)s to Cover Expenses · 3 Feb 2023 podcast

But when it comes to hardship distributions, you really only can take them for the reasons that the plan permits, which often conforms to the reasons that the IRS permits.

allows, you know, again, you know, to prevent things like foreclosure and eviction, to pay medical bills, to pay funeral expenses.

These are considered sort of emergency reasons why people are permitted to tap into their 401ks early.

Again, when you take money out of a traditional 401k account, you're going to have to pay income taxes.

And often, if you're younger than 59 and a half, you're

People need to think that it's not just about taking the money out to pay for their emergency expense.

They also need to cover the income taxes that are going to be due on that.

Right.

Congress used to require people who wanted to take a hardship distribution to first take a 401k loan.

And then if the loan didn't satisfy their need, they were permitted to then take a hardship distribution.

When the law changed in 2019, Congress said, you know, you don't have to take a loan first.

You can just go straight to a hardship distribution.

Also in 2019, Congress allowed people—previously they had said that you could only take out the money that you contributed—

Starting in 2019, they also gave people access to earnings on their contributions and some of the employer contributions as well.

So in 2020, during the pandemic, Congress enacted a law that gave people kind of special access to their 401k funds in case they needed them.

And it was up to $100,000.

And they waived a 10% penalty on those withdrawals that normally would apply when you take money out of a 401k prior to age 59 and a half.

So anyway, after 2020, that law lapsed and people could no longer get access, which was pretty easy access to up to $100,000 penalty free.

Now, if you take money out, if you take a hardship distribution, most of those hardship distributions, not only are you going to have to pay income tax on that distribution when you take it, but if you're younger than 59 and a half, you will have to take the 10% penalty.

They're not really waiving it.

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