News & Announcements

Can Your Employees Take a 401k Distribution to Pay Off Student Loans?

Posted Tuesday, June 11, 2019 6:26 am

The hardship exemption under Section 401(k) of the Internal Revenue Code permits a plan participant to receive an early distribution in situations involving an immediate and heavy financial need.   By law, such need expressly includes payment of tuition, related educational fees, and room and board expenses, for up to the next 12 months of post-secondary education for the employee, or the employee’s spouse, children, or dependents.

The question then arises:  Can your employees use the hardship exemption to pay off a student loan?  

According to the Internal Revenue Service (“IRS”), the answer is “no.”  In Information Letter 2018-001, the IRS explained that paying off student loans does not qualify for the hardship exemption because it is not payment for the “next 12 months” of post-secondary education.

As an alternative, however, an employee may be able to get a loan from the 401(k) plan and then use that money to pay off a student loan.  The loan from the 401(k) plan would be tax-free and the individual would have up to five years to repay it.

A copy of the IRS’s Information Letter can be viewed here:  IRS Information Letter 2018-0001, March 30, 2018.

Feature of the Month:

EEOCís Pay Data Collection: An EEO-1 Overview

Learn more about the EEO-1 Component 2 compensation data collection, due September 30.

Learn More

Subscribe to Our Training Events Updates

Subscribe to our training events notices to get in early on upcoming events.  Notices will arrive via email every Wednesday.

Back to top

Email Sign Up


If you are a member, please login below to manage your subscription. Otherwise, click "Continue to Subscribe"


Continue to Subscribe


Fill out the fields below to receive HEC emails.

How did you hear about HEC?

I would like to receive the following:

HR News Digest (weekly)
Training Events Notices (weekly)