Hardship withdrawal before 341 Meeting

[salesa]

I already have a loan out. I owe them like 427.00. They will still take out the money on my loan every paycheck but eventually that will go down. I wish i could just get another loan.

[Majakat]

how much in your total? you shouldbe able to take up to 50% of your total 401k in loan, even with a second loan

[BCA2009]

Just to clarify this. I don't believe you can put it back into the same account to avoid the tax consequences within 60 days.

If you open a new ira at some other bank in the same amount that you withdrew (before they deducted any withholdings), and tell them that it is an indirect rollover (so they can flag it when they send the info to the irs), then you avoid the penalty and tax owed on it. Google "indirect rollover" and you'll find a bunch of web pages about it.

If it is an IRA, you can put it back in the same account to avoid tax and penalty. It sounds like the OP has a 401k and those are goverened by the rules of the plan (in addition to the IRS), and I'm not familiar with any that would let you take a withdrawal, the replace it in 60 days. Alot of plans don't even allow loans. 401K plans can differ alot depending on how the plan is structured.

As far as tradional IRA's go, even if you can't put it back within the 60 day window, you can make a current year contribution that would offset the withdrawal for regular tax purposes (as long as it is under the annual contribution limit). You would still be responsible for the 10% penalty.

I chose to do this. Right after discharge I took 8K out to purchase a reliable used vehicle. I am able to put 4K back before the 60 days are up. I will contribute the other 4K back before next April 15 and it will count as a 2010 IRA contribution and be tax deductible for 2010. This will offset the tax I will have to pay on the 4K I wasn't able to return in the 60 day window. In the end it will only cost me $400 (10% penalty on 4K) to borrow the money from my IRA. And I will have the same amount of money in my IRA as I started off with.

I agree with everyone that retirement funds should be the last resort. But since I decided to surrender my truck, I needed a dependable vehicle. Rather than trying save up the 8K first, then buy the vehicle, I decided to use some IRA money to go ahead and get the car, then replace the funds with the money I would have saved up.

I know that I will replace the money, so I think it was the smart thing to do in my situation. But if I couldn't have replaced the money before next April 15, I'm not sure I would have went that route. I may have tried to get by on a real beater for a year or so.

It is all about your own circumstances. But like what has been said earlier, if you can't put it back, it will cost you alot. My 8K would have cost me 25% in marginal tax rate and 10% penalty, which would have been $2,800. That is a steep cost. Plus the money for my retirement would also have been gone.

Good luck with whatever you do.

[music12]

keep in mind, if you have a roth ira, you can take out anything you put in with no penalty or tax consequences.

[salesa]

I can't get another loan through my 401K. So i'm going to take $3,200 out of my retirement, that's not the full amount. And they are going to take 10% of that off top.
She said if i get a refund at the end of the year which i normally do, they will just deduct what i owe from my refund.

[JackBondLove]

You will have no problem taking a distribution from your retirement account POST filing. The BK estate is a snapshot on the date of the filing, not the 341. Just make sure that any documents that have your signature are dated after the filing date. Now with that said, it would be a good idea to only take out what you really need before the 341, or even the discharge date. Certainly, buying a car is an important expense.

Also, I wouldn't worry about the 10% penalty. Filing for BK, you are probably in a low tax bracket, so the overall pain won't be too bad. I myself am taking out such distributions at the 0% bracket, so my net tax rate is only the 10% penalty.

[salesa]

To JackBondLove:

My 341 Meeting was on 04/23/10. I withdrew 3200.00 for a hardship withdrawal for rent and bills and food on 05/03/10. I think i should be okay since i had already filed. I'm going to keep receipts of everything just in case it comes up before the discharge. I had no choice but to do was best to survive for me and my son. Thanks for the advice.

[gman]

To JackBondLove:

My 341 Meeting was on 04/23/10. I withdrew 3200.00 for a hardship withdrawal for rent and bills and food on 05/03/10. I think i should be okay since i had already filed. I'm going to keep receipts of everything just in case it comes up before the discharge. I had no choice but to do was best to survive for me and my son. Thanks for the advice.

salesa - I just sent you a private message and hope you can respond. Thanks.