Kentucky residents who have an urgent need for emergency cash may be able to take out a 401(k) hardship withdrawal. This may be available to make repairs to a home, pay emergency medical expenses or cover other emergency expenses such as rent or utility bills. To qualify for a loan, individuals cannot have access to other methods of covering those expenses. However, it may not be necessary for an employee to prove this.
The only exception would be if an employer knows that an employee has other resources such as access to a 401(k) loan. There are many consequences that an employee may want to consider before taking a hardship withdrawal. For instance, it may not be possible to make contributions to a 401(k) or other employer-sponsored plan for up to six months after taking money out. It is also important to note that taking money out of a 401(k) reduces a person’s ability to benefit from compound growth.
To make up for lost time, it may be necessary to increase future contributions, which could create additional financial challenges in the future. Individuals who opt for a hardship withdrawal may have to pay income taxes on the money. Giving a portion of a withdrawal to the government reduces how much a person actually has to pay bills or meet other financial obligations.
Filing for bankruptcy may be an effective method for an individual to obtain debt relief. Chapter 7 bankruptcy allows individuals to liquidate assets and use the proceeds to pay some or all of their debts. Filing for Chapter 13 may be suitable for those who wish to retain property while reorganizing their current debt payments. If balances remain after the repayment period ends, they may be discharged by a bankruptcy court.