Why & How To Avoid A Financial Hardship Withdrawal From Your 401(K)

If you look at your balance sheet, there’s a fair chance that if you have an employer-sponsored retirement plan, it’s one of your largest assets. This can lead many people to view their retirement plan as a resource when it comes to major financial hardships. This is a discussion of why a retirement plan should be a last resort when it comes to financial hardships, how to reduce the burden of financial setbacks, and other ways to fund this need.

Why Should A Hardship Withdrawal Be A Last Resort?

I’m going to use a hypothetical 35-year-old single investor named Conner to discuss this point. Conner makes $85,000 per year and has a 401(k) worth $100,000 today and experiences a serious hardship. His home burns down in a fire and he doesn’t have any insurance to repair/replace the home or his belongings. He withdraws the entire $100,000 from the 401(k) and uses it to rebuild his home.