How to Get Money From a 401k to Avoid a Foreclosure

Using your 401k retirement account to avoid a foreclosure is a no-brainer, according to the Microsoft Money website. The key issues are deciding whether to make a hardship withdrawal if you are less than age 59 1/2, or taking the money out as a loan that can be repaid over several years. A withdrawal creates considerable tax consequences, especially if you're under 59 1/2. The Internal Revenue Service imposes a 10 percent penalty on early withdrawals, but there is no penalty on borrowing.

Instructions

1

Contact your 401k plan administrator. Get the customer service phone number from a recent account statement. Tell the representative that you are facing foreclosure and need access to money from your 401k account as quickly as possible.

2

Ask how much money is available to you and the process for receiving it. You should be able to borrow up to 50 percent of your vested account balance or $50,000, whichever is less. Ask the representative for your plan's specific guidelines on straight withdrawals and loans. The IRS does allow hardship withdrawals to avoid foreclosure, but your employer may not. Generally, most employers agree to hardship withdrawals for true emergencies, such as foreclosure.

3

Choose a withdrawal or loan based on your age and situation. If you are at full retirement age a withdrawal may make sense. Otherwise a loan could be best. Get quick advice from a tax advisor or accountant if you have the time.

4

Fill out the necessary paperwork for your loan or withdrawal after receiving it from the plan administrator. Or complete the process online, if possible. Deposit the money into your account and pay the amount necessary to end your foreclosure.