It's an unfortunate reality that sometimes life throws unexpected curveballs, leading to financial emergencies. When these situations arise, your Nationwide 401(k) might seem like a tempting solution. However, qualifying for a hardship withdrawal isn't as simple as just needing the money. It involves strict IRS rules and Nationwide's specific plan provisions.
Are you currently facing a significant financial burden and considering your 401(k) as a potential lifeline? If so, you've come to the right place. This comprehensive guide will walk you through everything you need to know about qualifying for a hardship withdrawal from your Nationwide 401(k), step-by-step.
Navigating the Path to a Nationwide 401(k) Hardship Withdrawal
Understanding the requirements and process is crucial to a successful hardship withdrawal application. Remember, this isn't free money; it's your retirement savings, and there are significant tax implications and potential penalties to consider.
Step 1: Understand What a Hardship Withdrawal Is (and Isn't)
Before you even think about applying, it's vital to grasp the fundamental nature of a hardship withdrawal.
- Immediate and Heavy Financial Need: The IRS defines a hardship withdrawal as a distribution made due to an "immediate and heavy financial need." This isn't for discretionary spending or minor inconveniences. It's for truly pressing situations where you have no other reasonable means to meet the expense.
- Limited to the Amount Necessary: The amount you can withdraw is strictly limited to the amount required to satisfy the financial need. You cannot withdraw more than what is absolutely necessary, including any taxes and penalties that might apply.
- No Repayment Required (but also no recontribution): Unlike a 401(k) loan, a hardship withdrawal is a permanent distribution. You don't pay it back to your account. This means that money is gone from your retirement savings, and you lose out on any potential future growth on that amount.
- Taxable Income: Hardship withdrawals are generally considered taxable income in the year they are distributed. This means you'll pay federal income tax, and potentially state income tax, on the amount withdrawn.
- Potential 10% Early Withdrawal Penalty: If you are under age 59½, you will generally be subject to an additional 10% early withdrawal penalty on the taxable portion of the distribution, unless a specific IRS exception applies. While qualifying for a hardship withdrawal may exempt you from the 10% penalty in some cases, it's not guaranteed for all situations.
Key Takeaway: A hardship withdrawal should be a last resort after exploring all other options.
Step 2: Determine if Your Situation Qualifies Under IRS and Nationwide Rules
This is perhaps the most critical step. The IRS provides specific "safe harbor" reasons that generally qualify as an immediate and heavy financial need. Nationwide's plan will likely adhere to these, but it's essential to confirm with their specific plan document.
2.1 IRS Safe Harbor Reasons
According to IRS regulations, the following are generally considered immediate and heavy financial needs:
- Medical Care Expenses: Expenses for medical care previously incurred by you, your spouse, dependents, or plan beneficiary, or expenses necessary to obtain medical care for these individuals. This includes non-refundable deductibles or prescription drugs.
- Costs for a Principal Residence: Costs directly related to the purchase of a principal residence for yourself (excluding mortgage payments).
- Preventing Eviction or Foreclosure: Payments necessary to prevent your eviction from your principal residence or foreclosure on the mortgage on that residence.
- Post-Secondary Education Expenses: Payment of tuition, related educational fees, and room and board expenses for up to the next 12 months of post-secondary education for you, your spouse, children, dependents, or plan beneficiary.
- Funeral Expenses: Payments for funeral or burial expenses for your deceased parent, spouse, children, dependents, or plan beneficiary.
- Repair of Principal Residence Damage: Expenses for the repair of damage to your principal residence that would qualify for a casualty deduction under Section 165 of the Internal Revenue Code (even if the loss is less than 10% of your adjusted gross income).
- Federally Declared Disaster: Expenses and losses (including loss of income) incurred by you on account of a disaster declared by the Federal Emergency Management Agency (FEMA), provided your principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance.
2.2 Nationwide Specifics and Exclusions
While Nationwide generally follows IRS guidelines, their specific plan document may have additional rules or interpretations. It's crucial to understand that Nationwide may consider an "Unforeseeable Emergency" as a severe financial hardship that occurred within the last 12 months due to:
- An illness or accident of the participant or beneficiary, or spouse or dependent of the participant or beneficiary.
- Medical expenses not covered by insurance or other reimbursements.
- Funeral expenses for a spouse or dependent.
- Loss of the participant's or beneficiary's property due to casualty, such as damage caused by a hurricane or tornado.
- Foreclosure or eviction from
the participant's or beneficiary's primary residence.
Important Note: Nationwide explicitly states that a planned or voluntary event is generally not considered an unforeseen emergency. Examples of what typically would not qualify include purchasing a home or automobile (unless it's a direct result of a qualifying casualty loss), education expenses (beyond the immediate 12 months), normal monthly expenses like gas or groceries, elective surgery, taxes, legal fees/judgments, moving expenses, or loss of income that is not the direct result of an illness or accident.
2.3 Exhaust All Other Resources First
Both the IRS and Nationwide require you to demonstrate that you have insufficient cash or other liquid assets reasonably available to satisfy the financial need. This is a critical hurdle. You'll likely need to certify that you have already:
- Obtained all other currently available withdrawals (not including loans) from your 401(k) and/or 457(b) Plan accounts.
- Considered and exhausted other means of relief, such as insurance, other sources of funds, liquidation of non-essential assets (e.g., rental/vacation properties, RVs, boats), or borrowing from commercial sources on reasonable commercial terms.
- Considered discontinuing your 401(k) contributions.
This means you can't just take the money out because it's convenient. You must genuinely have no other reasonable way to pay for the expense.
Step 3: Gather Necessary Documentation
Proof is paramount when applying for a hardship withdrawal. Nationwide will require specific documentation to substantiate your claim. The more thoroughly you document your need, the smoother the process will be.
3.1 What to Document
- Medical Expenses: Detailed bills indicating the medical provider's name and address, date of service, procedures performed, and charges incurred (within the past 12 months). If you have insurance, a letter from your insurance company indicating the amount covered and the deductible owed, or reasons for no coverage. Prescription drug history with dates, insurance coverage, and your out-of-pocket amount.
- Principal Residence Purchase: Purchase agreement, closing disclosure, or other official documents outlining the direct costs related to the purchase.
- Eviction/Foreclosure Prevention: A letter from your mortgage company or landlord (issued within the past 30 days) indicating the exact dollar amount needed to prevent imminent foreclosure or eviction, a clear future due date, and the full address of the property.
- Education Expenses: Invoices or statements from the educational institution detailing tuition, fees, and room and board for the next 12 months.
- Funeral Expenses: Detailed invoices from the funeral home, cemetery, or other related service providers. If you are not listed as the responsible party on the bill, include a statement on or with the application indicating your responsibility for the expenses. Copies of receipts, booking information (air/hotel), and other travel expenses related to the funeral and/or burial.
- Property Loss Due to Casualty: If you have insurance, a letter from your insurance company indicating the amount covered by insurance and the deductible amount owed, or reasons for no coverage. If you do not have casualty insurance, include a signed statement indicating that you do not have insurance and the specific dates of no coverage. Detailed repair estimate from a licensed contractor or mechanic indicating the specific causes of the damage to your primary residence or primary vehicle.
- Loss of Income (due to illness/accident): Letter from your (or your spouse's/dependent's) employer indicating dates of employment, dates of missed work with reduced or no pay, and any sick/vacation pay, disability pay, or worker's compensation benefits received. A Loss of Income Verification Form completed by your employer.
- Proof of Insufficient Assets: This is often a self-certification, but Nationwide may also request copies of your most recent federal income tax return (pages 1 & 2 only) and two most recent pay stubs for you and, if married, your spouse, to verify your overall financial position. You may also need to attest that liquidating other assets would cause further severe financial hardship.
Recommendation: Keep meticulous records of all related expenses, bills, and communications.
Step 4: Contact Nationwide and Initiate the Application Process
Once you've determined your eligibility and gathered your documents, it's time to formally initiate the request.
4.1 Contact Nationwide Retirement Solutions
The primary point of contact for Nationwide 401(k) hardship withdrawals is Nationwide Retirement Solutions (NRS).
- Call them: The most direct way to get started is to call Nationwide Retirement Solutions at 1-877-NRS-FORU (1-877-677-3678). They can provide specific forms, answer questions about your plan's provisions, and guide you through the initial steps.
- Online Portal: Some Nationwide plans may offer an online withdrawal service. Check your plan's specific online portal to see if you can initiate the request or access forms there. Nationwide emphasizes their online withdrawal service for convenience and anti-fraud controls.
4.2 Complete the Hardship Withdrawal Application Form
Nationwide will provide you with a specific Hardship Withdrawal Application form. This form will require you to:
- Provide personal information: Name, SSN, address, date of birth, contact information.
- Detail the nature and description of the hardship: Be as specific and detailed as possible, including names, dates, and how the emergency occurred.
- Specify the amount requested: Remember, this must be limited to the amount necessary to satisfy the need, including potential taxes.
- Certify insufficient other assets: You will need to attest that you have no other source of assets that can be liquidated to meet the financial hardship.
- Spousal Consent (if applicable): Depending on your plan and marital status, your spouse may need to provide written consent, often witnessed by a notary public or plan administrator.
4.3 Submit Your Application and Supporting Documentation
Once the form is completed and all supporting documents are compiled, you'll submit them to Nationwide.
- Fax: 877-677-4329 (This appears to be a common fax number for Nationwide Retirement Solutions for unforeseeable emergency applications).
- Mail:
- P.O. Box Address: Nationwide Retirement Solutions, PO Box 182797, Columbus OH 43218-2797
- Express Mail Address: Nationwide Retirement Solutions, 3400 Southpark Pl Ste A, DSPF-F2, Grove City OH 43123-4856
Crucial Tip: Make copies of everything you submit for your records. Consider sending important documents via certified mail for tracking.
Step 5: Await Nationwide's Review and Decision
After submitting your application, Nationwide will review your request.
5.1 Review Process
- Nationwide typically aims to make a decision within five business days of receiving all required documents.
- They will assess whether your situation meets the IRS and plan-specific definitions of a hardship.
- They will also verify that you have exhausted other reasonable means of financial relief.
- Funds, if approved, will generally be withdrawn on a pro-rata basis across both pre-tax and post-tax money sources in your account, if applicable.
5.2 What to Expect if Approved
- Distribution of Funds: The approved amount will be distributed to you, typically as a one-time payment.
- Tax Withholding: Nationwide will generally withhold 10% for federal income taxes unless you request otherwise (and often 10% for California state income tax if you reside there, unless you specify otherwise). Be aware that the actual tax liability might be higher depending on your income bracket.
- No Future Contributions (Potentially): Under prior IRS regulations, you were often prohibited from making employee contributions for six months following a hardship distribution. However, this six-month suspension rule has been removed for hardship distributions occurring on or after January 1, 2020. You should confirm your plan's current rules, but generally, you can continue contributing.
5.3 What to Expect if Denied
If your request is denied, Nationwide should provide a reason for the denial. You may have the opportunity to provide additional information or explore other options. It's important to understand why it was denied to determine your next steps.
Step 6: Understand the Tax Implications and Future Impact
A hardship withdrawal has significant financial consequences that extend beyond simply receiving the funds.
6.1 Income Tax
- Federal Income Tax: The amount withdrawn is considered ordinary income and will be subject to your marginal federal income tax rate.
- State Income Tax: Depending on your state of residence, you may also owe state income tax on the withdrawal.
6.2 Early Withdrawal Penalty (Potentially)
- As mentioned, if you are under age 59½, a 10% early withdrawal penalty typically applies to the taxable portion of the distribution. While hardship withdrawals can sometimes be exempt from this penalty, it's not universal for all hardship reasons. It's crucial to confirm this with Nationwide or a tax advisor.
6.3 Lost Growth Potential
This is a frequently overlooked but extremely significant cost. Every dollar you withdraw from your 401(k) early is a dollar that can no longer grow tax-deferred within your retirement account. Over decades, this lost compound growth can amount to a substantial sum. For example, $10,000 withdrawn at age 35 could be worth significantly more by age 65 if left to grow.
6.4 Impact on Retirement Savings
Taking a hardship withdrawal directly reduces your retirement nest egg. This could mean you need to work longer, save more aggressively in the future, or adjust your retirement lifestyle expectations.
Seek professional advice: It is highly recommended to consult with a financial advisor and a tax professional before making a hardship withdrawal. They can help you understand the full financial impact and explore all alternatives.
Frequently Asked Questions (FAQs)
Here are 10 related "How to" questions with quick answers to further assist you:
How to confirm if my Nationwide 401(k) plan allows for hardship withdrawals?
You can confirm this by reviewing your plan's Summary Plan Description (SPD), contacting your employer's HR department, or by calling Nationwide Retirement Solutions directly at 1-877-NRS-FORU (1-877-677-3678).
How to determine the exact amount I can withdraw for a hardship?
The amount you can withdraw is limited to the immediate and heavy financial need, plus any anticipated taxes and penalties. You must provide documentation to justify the precise amount needed.
How to prove I have "insufficient cash or other liquid assets" to Nationwide?
You will typically need to self-certify on the application form that you have exhausted other reasonable means. Nationwide may also request supporting financial documents like tax returns or pay stubs to verify your financial position.
How to apply for a hardship withdrawal online with Nationwide?
While Nationwide has an online withdrawal service, it's best to call 1-877-NRS-FORU (1-877-677-3678) to inquire about the specific process for hardship withdrawals, as it often requires detailed documentation that may not be fully handled online initially.
How to avoid the 10% early withdrawal penalty on a Nationwide 401(k) hardship withdrawal?
Generally, qualifying hardship withdrawals may be exempt from the 10% early withdrawal penalty if you are under 59½. However, this is situation-dependent, and the withdrawal is still subject to ordinary income tax. Consult a tax professional for clarity on your specific case.
How to understand the tax implications of my specific hardship withdrawal?
It's crucial to consult with a tax advisor. They can help you calculate the federal and state income taxes you'll owe, confirm if any penalties apply to your specific situation, and advise on how to account for this on your tax return.
How to get the Hardship Withdrawal Application form from Nationwide?
You can usually obtain the form by calling Nationwide Retirement Solutions at 1-877-NRS-FORU (1-877-677-3678). It may also be available through your employer's retirement plan administrator or their online portal.
How to submit supporting documents for my Nationwide hardship withdrawal application?
You can typically fax them to 877-677-4329 or mail them to the P.O. Box or Express Mail address provided by Nationwide Retirement Solutions. Always keep copies for your records.
How to know if a 401(k) loan is a better option than a hardship withdrawal?
A 401(k) loan allows you to borrow from your account and repay yourself with interest, avoiding taxes and penalties if repaid on time. A hardship withdrawal is a permanent distribution with tax consequences. Consult a financial advisor to compare the pros and cons for your situation.
How to restart my 401(k) contributions after taking a hardship withdrawal from Nationwide?
Under current IRS regulations (effective January 1, 2020), the previous six-month suspension on contributions after a hardship withdrawal has been removed. You can generally continue or restart your contributions immediately, but confirm with your specific plan's rules.
