Bankruptcy Withdrawal
Why can’t a 401k be fully cashed out?
My mother-in-law is trying to cash out her 401k to pay for her son’s funeral. She went to her work place to cash it out (about $15000 total), but they would only let her get about $3000 out for some reason. She is fully vested. Why can’t she just get it all out and pay the penalties for early withdrawal?
This is a terrible time for making financial decisions. She has no money saved and owes the funeral home over $7000. She has a low income. She is actually not working at this time at all because she just had shoulder surgery 2 weeks ago. She has to be off work for another 4 to 6 weeks. The balance is due on 6/29/09. What can she do? Credit is shot due to bankruptcy. Can’t borrow money.
The only way she can get a full distribution is if she terminated employment. This is according to the IRS tax code, not the company policy. The money in a 401(k) is intended for retirement, so they make it difficult to use it for other purposes except extreme hardships.
She should be able to get a loan against the 401(k) for up to half the value. Has she tried that? Or, does she already have a 401(k) loan?
The only solution would be to make arrangements with the funeral home for a monthly payment plan. Did her son have any life insurance at all? Check with his employer – many employers cover their employees with up to $25,000 in life insurance.
Sorry for your loss.
401(k) Questions & Hardship Withdrawal Video | Bills.com
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