Hardship withdrawals from a Single(k) plan are only allowed under limited circumstances and are subject to specific IRS rules. These distributions are intended to help you address an immediate and heavy financial need, and the amount withdrawn must be necessary to satisfy that need. This article address hardship withdrawals in Single(k) non-record kept plans. Single(k) Plus plans should refer to: Understanding 401(k) Withdrawal Options and Processes

Who This Applies To

Hardship distributions are available to Single(k) plan participants who:

  • Experience a qualifying financial hardship (as defined by the IRS), and
  • Cannot reasonably obtain funds from another source (e.g., personal savings, loans).

Note: As both the plan sponsor and participant in a Single(k), it is your responsibility to maintain personal documentation of the hardship event. This is critical because hardship withdrawals allow access to plan assets that are otherwise restricted under IRS rules. Proper documentation can help you avoid making a prohibited transaction, which could lead to plan disqualification and tax penalties.

While Solo 401(k)s are popular for their contribution flexibility and tax advantages, they are still subject to the standard distribution rules governing most retirement plans. We strongly recommend consulting a tax advisor for personalized guidance and to ensure full compliance with IRS requirements.

Qualifying Reasons for a Hardship Withdrawal

The IRS allows hardship distributions only for the following expenses:

  • Unreimbursed medical expenses for you, your spouse, dependents, or beneficiaries.
  • Costs related to the purchase of your primary residence, excluding mortgage payments (not applicable to vacation or rental homes).
  • Tuition, fees, and room and board for the next 12 months of post-secondary education for you, your spouse, children, or dependents.
  • Payments to prevent eviction or foreclosure on your primary residence (not applicable to vacation or rental properties).
  • Burial or funeral expenses for your deceased parent, spouse, child, or dependent.
  • Repair expenses for damage to your primary residence that would qualify for a casualty loss deduction under IRC Section 165 (even if limitations added under 165(h)(5) apply).
  • Expenses or loss of income due to a federally declared disaster, if your primary residence or place of employment is in a disaster area designated for individual assistance.

Hardship Withdrawal Amount Rules

To meet IRS requirements:

  • The amount withdrawn must be limited to the amount needed to cover the financial hardship plus any taxes or penalties resulting from the distribution.
  • You must not have other reasonable means to obtain the funds.

How to Request a Hardship Withdrawal

Single(k) participants must submit hardship requests directly to their plan custodian. Ubiquity does not process these requests on your behalf.

Tax Implications

  • A hardship withdrawal is taxable in the year taken.
  • If you are under age 59½, you may also owe a 10% early withdrawal penalty.

However, there may be an exception to the penalty if the distribution is for unreimbursed medical expenses that exceed 10% of your adjusted gross income. Check with a tax professional to determine if you qualify for this exemption.

Need Help?

If you have taken a hardship withdrawal and would like Ubiquity to prepare the related 1099-R on your behalf please email us at singlek@myubiquity.com.