Updated: Mar 15, 2024

How to Get a 401(k) Hardship Withdrawal for Specific Financial Needs

Find out whether you qualify for taking out a 401(k) hardship withdrawal, which will let you access retirement funds for dire financial needs.
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Most employees who participate in a 401(k) plan are well aware of 401(k) loans, at least if your employer offers them.

But far fewer know that you can also take early distributions from the plan under a 401(k) hardship withdrawal.

It’s a completely different arrangement than a 401(k) loan, and it applies only under certain very limited circumstances.

But it’s a plan provision you should be aware of in case you ever face one of the permitted hardships.

It will give you access to funds from the plan, which for many people is the single largest asset they have.

Here are the basics of 401(k) hardship withdrawals:

IRS Rules for What Qualifies for a Hardship Withdrawal

There’s a key point when it comes to 401(k) hardship withdrawals, and that’s that while they are permitted by the IRS, an employer is not required to offer them. But if the employer does, there are two general requirements:

The withdrawal must be related to an “immediate and heavy financial need”, and

The amount withdrawn is limited by the amount necessary to satisfy that financial need.

Immediate and heavy financial need

This is a critical point in the allowability of a 401(k) hardship withdrawal. To qualify, the need must meet the following requirements:

The distribution can’t be greater than the amount of the immediate and heavy financial need, including any amounts needed to pay taxes from the distribution.

The employee must have exhausted all other distributions and nontaxable plan loans, including all other plans maintained by the employer.

The employee isn’t permitted to make elective deferrals for at least six months after the hardship distribution.

Specific Permitted Hardship Withdrawals

Under IRS regulations, 401(k) plan participants are permitted to make hardship withdrawals under the following six hardship withdrawal types:

  1. Medical care expenses for the employee, the employee’s spouse, dependents or beneficiaries.
  2. Costs directly related to the purchase of an employee’s principal residence, not including mortgage payments.
  3. Tuition, room and board, and related educational expenses for the next 12 months of postsecondary education for the employee, the employee’s spouse, or a member of the employee’s family.
  4. Payments needed to prevent eviction from the employee’s principal residence, or foreclosure on the mortgage on the property.
  5. Funeral expenses for the employee, employee's spouse, and members of the employee’s family.
  6. Certain expenses to repair damage to the employee’s principal residence.

The actual amount withdrawn is limited to the amount necessary to satisfy the need, and will be reduced by any funds the employee could obtain from another source.

Those other sources include insurance or other reimbursements, liquidation of assets, the employee’s income, loans from the retirement plan, or the proceeds of reasonable commercial loans.

However, the employee doesn’t have to use any of those alternative fund sources if doing so will increase the financial need.

How Much Can You Take Out and Do You Have to Repay the Withdrawal?

The amount of a 401(k) hardship withdrawal is limited to the combination of elective deferrals made by the employee, employer profit-sharing contributions and regular matching contributions.

However, the withdrawals must come only from those contribution sources, and not from income earned in the plan.

Since 401(k) hardship withdrawals are distributions from an employer plan – and not loans – the funds do not need to be repaid.

In fact, once taken, repayment is prohibited by the IRS.

It’s also not possible to roll over the amount of the withdrawals into another retirement plan, such as an IRA.

The Tax Consequences of 401(k) Hardship Withdrawals

Like all other distributions from the tax-sheltered retirement plan, 401(k) hardship withdrawals will be subject to ordinary income tax.

The only exception is when those funds withdrawn come from the portion of a 401(k) plan that constitute Roth contributions.

If the employee is under the age of 59 ½ at the time of the withdrawals, the distributions may also be subject to the 10% early withdrawal penalty.

However, the penalty may be waived if the distributions qualify for one of the exceptions permitted by the IRS.

Some of the exceptions most likely to apply in the case of a 401(k) hardship withdrawal include total and permanent disability of the employee, a series of substantially equal payments, and unreimbursed medical expenses exceeding 10% of the employee’s adjusted gross income.

The Impact of a 401(k) Hardship Withdrawal on Retirement

Depending on the amount withdrawn from your plan under a 401(k) hardship withdrawal, there can be a material effect on your retirement.

Since you can withdraw the entire amount of your contributions as well as those made by your employer on your behalf, you can substantially drain the plan.

This will be especially true if you are relatively new to the plan, and the vast majority of the plan value is made up of contributions.

Once again, IRS 401(k) hardship withdrawal rules don’t permit the distribution of the earnings in your plan. But if you are in the plan for only a few years, relatively little will be investment earnings.

Conversely, if you’ve been in the plan for many years, accumulated investment earnings may make up the majority of your plan value. In that situation, your plan may still have a large balance, even after withdrawing 100% of the plan contributions.

But any large withdrawal will represent an early draw down on your plan value. Naturally, this will leave a smaller account available when retirement arrives.

Even if you’re facing a major financial crisis, you may need to weigh out how much you’ll withdraw from the plan for the hardship, in relation to how much you want to retain in the plan for retirement. This may be especially important if the time of financial crisis comes within a few years of your planned retirement.

Under any circumstances, every effort should always be made to minimize the amount withdrawn. That strategy will maximize the amount of funds remaining in your plan for retirement and minimize tax consequences.

What is the Process for a 401(k) Hardship Withdrawal

The first step will be to contact your human resources department or plan administrator to see if the plan permits hardship withdrawals.

Once again, not all plans do. If they do, there’s likely to be an established process you’ll need to follow to get the funds.

It can usually be done by completing the required paperwork, and the distribution can be completed in under 30 days.

Because of the timing factor, it will be important to contact your employer and get any necessary documents as soon as the possible need for a hardship withdrawal becomes a reasonable possibility.

401(k) Hardship Withdrawal vs. a 401(k) Loan

A 401(k) loan has the advantage that it can be taken without seriously disturbing your plan.


You’ll reduce the amount of funds in your plan earning investment income, but you’ll be repaying the loan amount at a rate of interest that will provide at least some income to the plan.

The downside is that you’ll be taking on an additional obligation that may continue to exist for years after the crisis that necessitated the loan in the first place.

And if the financial crisis leaves you unable to continue working for a time, such as a medical event, you won’t be making repayments at all. How that will be handled will depend on your employer’s policy regarding 401(k) loans.

But in most situations, a 401(k) loan will be preferable to a hardship withdrawal.

That’s primarily because the withdrawal will create a tax liability (where 401(k) loans don’t), and represent a permanent reduction in the value of your account.

You should consider taking a 401(k) loan before doing a withdrawal. The withdrawal should only be preferred if the 401(k) loan won’t solve your problem.


It’s a source of funds in an emergency financial situation.

Since 401(k) plans are often an employee’s largest single financial asset, a hardship withdrawal can be the most substantial source of funds in a crisis.

The funds from the withdrawal can be used for the kinds of financial crises that often leave people financially impaired. For example, it might make little sense to lose your home or be forced to file for bankruptcy when you have a six-figure 401(k) balance.

Withdrawing 401(k) funds may eliminate the need to take on costly financing that will take you years to pay off.

IRS regulations prohibit the withdrawal of accumulated investment earnings, guaranteeing that at least some of the funds will remain in your plan even after the hardship withdrawal.


There are tax consequences to a 401(k) hardship withdrawal. Unless you qualify for a permitted IRS exception, you may also have to pay the 10% early withdrawal penalty.

The amount of the withdrawal can represent a serious reduction in the value of your plan. That may have a material negative impact on your retirement.

You will not be permitted to make contributions to your plan for at least six months following the hardship withdrawal.

The funds withdrawn will represent a permanent loss of investment income that will never be recovered.

When Does it Makes Sense to Take Out a Hardship Withdrawal?

Though it may be tempting to avoid withdrawing funds from your 401(k) plan even for a hardship – attempting to preserve them for retirement instead – it may be absolutely necessary if your 401(k) plan is your primary asset.

But it should only be done if all other potential sources of cash have been exhausted.

It has to be remembered that a 401(k) hardship withdrawal will create a tax liability, as well as reduce the funds you have available to retire.

Think of it as a last-ditch solution only.

But one that must be considered if no other reasonable alternatives exist.