How to Write a Letter for a 401(k) Hardship Withdrawal

According to Laura Bruce writing for in 2008, “Cash-strapped employees are turning to their retirement plans as the credit crunch drags on and costs for everyday necessities continue their upward spiral.” There are plenty of reasons the trend continues: underwater mortgages, lack of savings and job losses are a few. Early withdrawal from a 401(k) account can help set things right, which is why it is important to know how to write a hardship letter to set the process in motion.

Step 1

Meet IRS hardship withdrawal criteria. The Internal Revenue Service allows early withdrawals from 401(k) accounts if, “immediate and heavy financial need” criteria are met. Included in these criterion are medical care, costs related to purchasing a principal residence, tuition, educational and housing expenses, avoiding an eviction, repairing extreme home damage and funeral expenses. Find a description of the entire IRS Code by perusing (Reg. §1.401(k)-1(d)(3)(i)).

Step 2

Format your letter. Before you start drafting your 401(k) hardship letter, ask your HR department or your broker to give you the name and correct spelling of the person to whom you are writing to avoid a “To whom it may concern” salutation. Open an 8.5 x 11 inch document page using your word processing software. Keystroke your name, address, city, state, zip code, phone number, e-mail address and the account number/loan number associated with your 401(k) plan. If you are stuck for a starting sentence, research sample 401(k) hardship withdrawal letters on the Internet and "borrow" the language to get started.

Step 3

Draft the content. Begin your letter by explaining in specific terms the circumstances leading to your misfortune. Reference attachments and disclosures that prove your case as you write. Mention the fact that you have no other recourse to mediate your dilemma. Specify the amount of money you need from your 401(k) account. Explain your understanding of consequences you anticipate as a result of making the early withdrawal. Include pertinent dates, e.g., when you stopped making your mortgage payments and the number of months you are currently behind. Write as much text as you like to create draft one.

Step 4

Edit your letter. Aim for a one-page letter, two at the most. Stress the outcome you wish to realize early in the hardship letter: stopping a potential foreclosure, emergency repairs to your home or catastrophic hospital bills. Remove superfluous details and redundancies that obscure the facts you are presenting in support of your need to withdraw 401(k) funds early. Keep editing until you are satisfied that you can’t remove another word without losing important information. Don’t date the letter unless you intend to send it out immediately.

Step 5

Percolate, proof and send your hardship letter. Many writers allow their work sit overnight so they can re-read it the next day with fresh eyes. It may help to do that. Read your letter aloud to another person, too. Ask if he understands the content as it relates to your hardship and request for an early withdrawal from your 401(k) account. Put your loan and/or account number on every page. Date and spell check the letter. Print it out on white paper. Gather your attachments and make photocopies. Never send originals. Mail your hardship letter and attachments. Request a return receipt.

Step 6

Follow up. Call your broker, human resources contact or fund manager a week or so after your hardship letter has been sent if you did not request a return receipt. Inform your accountant or tax preparer of your 401(k) hardship withdrawal letter so she can anticipate your tax burden. You are under no obligation to repay a hardship distribution; it permanently reduces the balance of your account. In some cases, you may be prohibited from making contributions for at least six months; verify this with your fund manager or HR professional.