Fidelity 401k hardship withdrawal terms and conditions

The vast majority of the time you have your Fidelity 401k, the money flows in just one direction: from your paycheck directly into your retirement account, with matching funds from your employer if you’re lucky. However, for all the focus on putting money into your 401k, there will come a time when you will need to make a 401k withdrawal.

Ideally, the withdrawal will happen because you’ve reached retirement and you’re ready to stop working for your money and put it to work for you. However, you might also need to make a 401k early withdrawal or 401k hardship withdrawal for unforeseen circumstances.

Regardless of why, understanding the Fidelity 401k withdrawal rules is the only way to be sure you can avoid a 401k withdrawal penalty. Here’s a look at the basics of making a withdrawal from your Fidelity 401k so you can navigate the process confidently.

Making a Fidelity 401k Withdrawal

Your 401k is your money, and making a withdrawal is as simple as contacting Fidelity to let them know you want it. The easiest way is to simply visit Fidelity’s website and request a check there. However, you can also reach out via phone if you prefer: Call 800-343-3543 with any questions about the process.

From there, you can download the appropriate withdrawal request form and then mail it to the address listed on the form. Fidelity will have your check for you in five to seven business days after receiving your request. There are no fees for requesting a check, but if you liquidate any holdings, there could be commissions or mutual fund fees associated with that.

Borrowing From Your 401k: What You Need to Know

If You Are 59 1/2 or Older

Once you are six months away from your 60th birthday, you can begin making withdrawals from your Fidelity 401k without having to worry about any additional tax penalties. Your 401k is now money that’s there for you to start preparing for the next stage of your life as you put the finishing touches on your career and prepare to start drawing Social Security benefits.

However, that doesn’t mean you don’t have to worry at all about taxes. Money withdrawn from your 401k is taxable income, so you should be careful to consider just how much you need to withdraw in any given tax year to ensure you’re not hitting a higher tax bracket and seeing more of your hard-earned money lost to taxes. If you have a Roth IRA or Roth 401k, though, you can make tax-free withdrawals from those, so you can balance withdrawals to minimize the tax impact.

Your Fidelity 401k comes with the option to schedule regular withdrawals so that you can do the paperwork for your withdrawal once and then set up a recurring payment. With structured, regular withdrawals, you can set up a budget that will limit your withdrawals to what you need, and you’ll be able to have checks showing up on a set schedule.

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If You Are Under 59 1/2

Making a withdrawal from your Fidelity 401k prior to age 60 should always be a last resort. Not only will you pay tax penalties in many cases, but you’re also robbing yourself of the tremendous benefits of compound interest. This is why it’s so important to maintain an emergency fund to cover any short-term money needs without costing yourself extra by making a 401k early withdrawal.

However, life has a way of throwing you curveballs that might leave you with few to no other options. If you really are in a financial emergency, you can make a withdrawal in essentially the same way as a normal withdrawal. The form is filled out differently, but you can find it on Fidelity’s website and request a single check or multiple scheduled payments.

If you jump the gun, though, and start making withdrawals prior to the age of 59 1/2, you’ve essentially broken your pact with the government to invest that money toward retirement. As such, you’ll pay tax penalties that can greatly reduce your nest egg before it gets to you. A 401k early withdrawal means a tax penalty of 10 percent on your withdrawal, which is on top of the normal income tax assessed on the money. If you’re already earning a normal salary, your early withdrawal could easily push you into a higher tax bracket and still come with that additional penalty, making it a very pricey withdrawal.

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401k Hardship Withdrawal

There are, however, a number of different circumstances in which you can avoid that additional tax penalty. The IRS allows for a 401k hardship withdrawal in certain situations like a medical emergency or to pay for funeral expenses, and if you qualify, you’ll still pay normal income taxes on the money but no additional penalties.

There are a few other special exceptions that will allow you to make an early withdrawal without paying additional taxes within certain limitations, including paying for college tuition or your first home. Consult with a Fidelity representative prior to making a withdrawal to ensure you aren’t paying any unnecessary penalties.

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