Economic Hardship Exception:
The Economic Hardship Exception refers to a provision that allows individuals to withdraw funds from certain retirement accounts, such as 401(k) plans, without incurring the typical early withdrawal penalties. This exception can be invoked when an individual faces significant financial distress, which may include circumstances like unemployment, medical expenses, or the risk of foreclosure on their primary residence.
To qualify for this exception, the individual must demonstrate that the hardship is immediate and necessary. For example, if a person is unable to pay for essential medical treatment or is facing eviction due to unpaid rent, they may be eligible to access their retirement funds without penalty. However, regular income taxes on the withdrawn amount may still apply.
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