The 401k hardship rule tuition withdrawal refers to going to school using your retirement money - or someone else's if they really want to help! If you plan to go to school, using your retirement account to help might be a good deal. Take a look below for more information.
The IRS has several categories for withdrawals classified as what they call approved hardships. The categories include:
Here is an explanation of the 401k hardship rule tuition withdrawal idea:
Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary (more on this below) education for the employee who owns the account, or the employee's immediate family ( including their spouse, children, or dependents).
You will need to verify with your retirement account management company, but typically you can withdraw money to continue working on your degree.
Also, remember you need to be working on post-secondary education. What qualifies as post-secondary education? Going to college for any degree after high school qualifies as post-secondary. Also, certificate programs usually meet the requirement, and most vocational programs.
As a key to the post-secondary requirement of the 401k hardship rule tuition withdrawal, just determine if you need a high school diploma or a GED. If so, it nearly always meets the requirement and you can use a 401k withdrawal to fund it.
I’d like to remind you that you spent some time building up that 401k, so don’t spend the money unwisely ;o(. For instance, making a withdrawal just to take a class for fun. You should save that money if at all possible.
You can compare using retirement money for an education to an investment. By completing more education, you can expect to earn more money, which in turn will help you save more for retirement. If the education won’t help you earn more, or someone in your family earn more, you may want to find another way to pay for the classes.
Sometimes lenders don’t approve you for a student loan as large as you need, or you don’t get a big enough grant. Or maybe you didn't qualify to renew a scholarship. In those cases, a 401k hardship rule tuition withdrawal can really help. Just try to conserve, since retirement money can grow if you leave it alone, but not if you take it out.
A few years ago, I had a an unexpected layoff. I had a few thousand dollars in my 401k. To keep up with mortgage payments, I withdrew my retirement money. It took some paperwork, but I was able to make a few payments and kept my house until I could get another job. Very helpful.
My situation fell in the same category as someone making a 401k hardship rule tuition withdrawal. You can, if necessary, do the same for your degree.
Just a note. All of the above is for information only. Verify the requirements of your plan before proceeding, and make sure you have followed their guidelines. I retold my experience as an illustration, only.
You can download a free PDF of government grant sources and scholarships across the country on my free money for college information page. You can find more places to apply, and conserve that 401k money.