How Many Hardship Withdrawals Are Allowed In A Year Empower? Quick Answer + Details
Ever found yourself staring at your Empower retirement account, a little voice whispering, "What if...?" We all have those moments when life throws a curveball, and suddenly that nest egg looks like a potential lifeline. It's easy to get tangled in the "what ifs" and "how many" of accessing your hard-earned cash before you're ready to hang up your hat.
Let's dive into the wonderful world of hardship withdrawals from your Empower account. Think of it less like a stern bank teller and more like a wise, albeit slightly cautious, friend. They're there for you in a pinch, but they also want to make sure you don't accidentally eat all your future cookies in one sitting!
The Burning Question: How Many Times Can You Raid the Cookie Jar?
So, you're probably wondering, "Can I just pop over to Empower for a little cash infusion every Tuesday?" The short, sweet, and slightly anticlimactic answer is: there's generally no limit to the number of hardship withdrawals you can take in a year.
Wait, what? No limit? Before you start mentally planning your hardship withdrawal world tour, hold your horses just a sec. While the number isn't the main roadblock, there are some pretty significant speed bumps to keep in mind. It's like being allowed to eat as many doughnuts as you want, but each one costs a small fortune and might give you a tummy ache!
The Real Catch: It's All About the "Why"
The real magic, or rather the real restriction, with hardship withdrawals lies in the "why." The IRS, the ultimate gatekeeper of retirement funds, has very specific ideas about what constitutes a genuine hardship. This isn't for buying that shiny new gadget or funding an impromptu trip to Bora Bora (unless Bora Bora is suddenly facing an unprecedented natural disaster, which, let's be honest, is unlikely).
Think of it as needing a "golden ticket" to access your funds. This ticket is only issued for truly dire situations. These are the moments when you have no other reasonable options. We're talking about events that make you genuinely sweat and worry about keeping the lights on or food on the table.
Key hardship situations typically include:
- Certain medical expenses for you, your spouse, or dependents.
- Costs for purchasing a principal residence (excluding mortgage payments).
- Payments for tuition, related educational fees, and books for the next 12 months of post-secondary education for you, your spouse, or dependents.
- Payments necessary to prevent eviction from your home or foreclosure on your mortgage.
- Certain funeral expenses.
- Expenses for the repair of damage to your principal residence that would qualify for the casualty deduction under the Internal Revenue Code.
See? It's not a free-for-all. The IRS wants to ensure that these withdrawals are a last resort, not a convenient pit stop for a financial snack. They're designed to help you navigate those truly stormy seas, not just a light drizzle.
The "Reasonable and Necessary" Dance
Beyond just fitting into one of those categories, the amount you withdraw also needs to be "reasonable and necessary." This means you can only take out what you actually need to cover the specific hardship. No padding the request with extra cash for a rainy day – that's what your retirement account is supposed to be for!
So, if your roof springs a leak that costs $5,000 to fix, you can't ask for $10,000 just because you think it's a good deal on a new patio. It's about addressing the immediate, pressing problem. Empower, and the IRS, will want to see the receipts, metaphorically speaking.
The Ghost of Taxes and Penalties Past
Now, let's talk about the elephant in the room – taxes and penalties. Taking a hardship withdrawal is like borrowing from your future self. And your future self will likely be sending you a bill, often with a hefty late fee attached! Most hardship withdrawals are subject to ordinary income tax in the year you take them.
And if you're under the age of 59½ (with a few exceptions), you'll likely face an additional 10% early withdrawal penalty. Ouch! That's like paying extra just to get your own money back. It's a significant deterrent, and for good reason. The government wants you to keep that money growing for your golden years.
This is why the "number of times" question is less important than the "cost" of each withdrawal. Each time you take a hardship withdrawal, you're not just taking money out; you're potentially sacrificing future growth and paying extra fees. It's a triple whammy of reduced savings!
What About Those "Other" Withdrawals?
It's important to distinguish hardship withdrawals from other types of distributions. For example, if you leave your job, you might have options to roll over your Empower funds into another account or take a lump-sum distribution. Those are different beasts entirely and don't usually fall under the strict hardship rules.
There are also loans you can take from your Empower account. These are generally repaid with interest and don't have the same tax implications as a withdrawal, provided you pay them back on time. Think of a loan as borrowing from a very patient friend who happens to be your retirement fund.
The "In-Service" Dilemma
Sometimes, people wonder about taking money out while still employed. This is where the hardship rules are particularly strict. You can't just decide you want to redecorate your living room and tap into your Empower 401(k) while still collecting a paycheck from the same company. The "hardship" must be truly exceptional.
The IRS is very clear: hardship withdrawals are intended for situations that would cause "immediate and heavy financial distress." If you're still employed, it implies you have a source of regular income. Therefore, the bar for proving hardship is even higher.
Empower's Role in This Financial Drama
Your plan administrator, like Empower, is the one who will actually process your withdrawal request. They'll guide you through the paperwork and ensure you're meeting the IRS guidelines. They're not the rule-makers, but they are the gatekeepers who ensure the rules are followed.
Think of Empower as the friendly but firm librarian. They'll help you find the book (your money), but they need to make sure you're checking it out for the right reasons and understand the consequences of taking it out too early.
The Heartwarming Side?
While the rules sound strict, and the financial implications can be daunting, the existence of hardship withdrawals is actually quite heartwarming. It means that the system, imperfect as it is, has a built-in safety net for those truly dire moments.
It's a testament to the idea that your retirement savings aren't just a number on a screen; they're there to provide security. In extreme circumstances, that security can extend to helping you weather a storm that threatens your immediate well-being. It’s a final, albeit costly, embrace from your future self.
So, while there isn't a simple "you can take X number of hardship withdrawals a year," the answer is more nuanced. It's about qualifying for the withdrawal based on your specific, unavoidable financial emergency. It’s about understanding the true cost, both in taxes and lost growth, of tapping into your future.
Ultimately, the best advice is to avoid hardship withdrawals altogether if at all possible. Build that emergency fund outside your retirement accounts. But know that if life truly knocks you down, Empower and the IRS have a pathway, albeit an expensive one, to help you stand back up. It’s a tool for emergencies, not for everyday splurges!