Not only will the person have to pay taxes, pay a penalty and reduce their investment, they may also not be allowed to add to their 401k for 12 months. Many people do not think of this because of the immediate financial burden without any other foreseeable option of help. It is not recommended to request a withdrawal from a 401k because it will have a serious impact on the person’s future gains that the money could have earned. There is also a penalty of 10 percent if the employee is under the age of 55. If the employee’s total income is high, a higher percentage may be removed. The withdrawal is also taxable and will have a mandatory 20 percent withholding tax removed from the amount. Plans Require Proof Some plans require proof that the employee tried other means to get the money before requesting a 401k withdrawal. ![]() The company will have its own plan if it allows withdrawals and these plans may be even tougher than federal guidelines. These decisions are not made lightly and do not allow frivolous withdrawals. Hardship withdrawals from a 401k involve many legal issues, which is why the process can be very strict.
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