How to Make a 401(k) Hardship Withdrawal

A 401(k) hardship withdrawal allows you to take money from your retirement savings early if you face a severe financial need. However, withdrawing before retirement age can come with penalties and long-term consequences.

Here’s a guide to requesting a hardship withdrawal, including the eligibility requirements and qualifying expenses. We’ll also explore alternatives to tapping into your retirement funds and the pros and cons of using this option so you can make an informed decision.

How does a 401(k) hardship withdrawal work?

With a 401(k) hardship withdrawal, you can withdraw money from your retirement savings early (before age 59.5). If you’re urgently facing a significant financial need and want to use your retirement savings to help cover the costs, the first step is to ensure your retirement plan allows hardship distributions. 

A few ways you might check if your retirement plan allows hardship withdrawals are:

• Inquiring with your employer’s HR department
• Contacting your 401(k) plan administrator
• Reviewing any documentation you received about your 401(k) plan

Once you know if your retirement plan offers hardship distributions, you must demonstrate to your employer that you have an “immediate and heavy financial need.” If so, you may be able to receive a distribution from your 401(k) that’s no more than the amount needed to cover the hardship costs. 

Unlike a 401(k) loan, you won’t repay the money you withdraw from your retirement account for the hardship. However, you’ll need to pay income taxes on the distribution. Plus, you may need to pay an extra 10% in taxes for the early distribution. 

Furthermore, you may not be allowed to make additional contributions to your retirement six months after receiving the distribution. That said, consider the consequences of a hardship withdrawal before taking one. 

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Am I eligible for a 401(k) hardship withdrawal?

Your employer is responsible for making the final determination, based on the facts of your situation, whether you qualify for a 401(k) hardship withdrawal. Each employer or 401(k) plan administrator will have different processes for what’s required and how to do this. 

Even so, be prepared to provide your employer with any documentation they might request, such as a written statement about your ability to fill your need from other sources and invoices or cost estimates. 

For your distribution to be approved, it must meet two essential IRS conditions:

1. The hardship withdrawal must be due to an “immediate and heavy financial need.”
2. The distribution amount, including taxes, cannot exceed the actual cost of covering the financial need.

What qualifies as an ‘immediate and heavy financial need’?

The IRS specifies certain situations where hardship withdrawals are more likely to be approved. While some expenses clearly qualify, others—such as consumer purchases—do not. Here’s a breakdown of what typically qualifies as an “immediate and heavy financial need” and what doesn’t:

Likely qualifies	Likely doesn’t qualify
✅ Medical care expenses for qualified individuals*	❌ Consumer purchases (e.g., boats, televisions, other consumer goods)
✅ Costs to buy a primary residence for the employee, other than payments on the mortgage
✅ 12 months of postsecondary education costs for tuition, related fees, and room and board for qualified individuals*
✅ Funds necessary to prevent the employee from facing foreclosure or eviction from their primary residence
✅ Funeral expenses for qualified individuals*
✅ Some costs necessary to fix damage to the employee’s primary residence

How much can I take out for a 401(k) hardship withdrawal?

Hardship withdrawals are limited to the amount necessary to meet your financial need. Your employer cannot approve a distribution higher than the amount required to cover your expenses, including applicable taxes. 

Be prepared to provide invoices or cost estimates that substantiate your claim to your employer if requested. Even if your employer allows you to summarize the information in these documents (rather than giving them the actual documents), keep them on hand in case you need them.

The goal is to ensure the withdrawal addresses the financial need without unnecessarily draining your retirement savings.

Other rules about 401(k) hardship withdrawals to know

Understanding the rules surrounding 401(k) hardship withdrawals can help you avoid penalties and protect your retirement savings.

You must explore alternative funding sources first

Remember that your 401(k) is intended primarily for retirement savings. To protect your long-term financial security, the IRS requires that you explore other funding options before withdrawing from your 401(k) due to hardship.

Before requesting a hardship withdrawal, consider these alternative sources:

• Insurance payouts or benefits
• Selling assets
• Loans from your 401(k)
• Personal loans or reasonable commercial loans

Ultimately, your employer will determine your eligibility for a hardship withdrawal. Employers can rely on your written statement confirming that you cannot meet the financial need through other resources, such as insurance, asset sales, or loans.

However, if exhausting other options would worsen your financial situation—like impacting your ability to qualify for a mortgage—you aren’t required to pursue those alternatives. This flexibility helps ensure the hardship withdrawal process doesn’t put you in a more difficult financial position.

You can only withdraw from specific sources of your 401(k) 

Hardship withdrawals can only be taken from specific sources within your 401(k), including:

• Elective deferrals
• Non-elective contributions made by the employer
• Employer matching contributions

It’s important to note that earnings on these contributions and any amounts rolled over into the plan are not eligible for withdrawal. This means you’re limited to accessing contributions you and your employer made directly to the account.

Misuse of the funds can result in penalties

The IRS generally does not track how you use hardship withdrawals, as it generally relies on the information you provide to your employer. However, misuse of the withdrawal for non-qualifying purposes could result in penalties, taxes, or disqualification of the distribution’s tax benefits in the event of an audit. 

When certifying your need, be prepared to substantiate the cost of the claim with documentation such as invoices or cost estimates. Plus, be prepared to provide a written statement describing your need and certifying that you can’t fill the need with other sources (e.g., loans or your ongoing pay). 

To avoid any issues, it’s critical to use the funds strictly for the qualifying expenses you outlined when you applied for the withdrawal. You should also retain any supporting documentation if you need it in the future, such as in the case of a tax audit. 

How to request a 401(k) hardship withdrawal

The process for requesting a 401(k) hardship withdrawal will be specified by your employer or retirement plan administrator. For this reason, your first step should be to contact them to discuss the process.

Regardless of the specifics, there are general steps you can expect to take when requesting a hardship withdrawal:

1. Contact your employer or plan administrator. Reach out to understand your plan’s specific process and get the necessary forms or access to online portals where requests can be submitted. Make sure to also inquire about how long the process will take.
2. Review the IRS requirements. Confirm that your financial situation meets the IRS criteria for an “immediate and heavy financial need,” as this will determine your eligibility.
3. Prepare documentation. Gather any supporting documents that demonstrate your financial need. These may include medical bills, foreclosure or eviction notices, education expense invoices, funeral expense documents, or home repair estimates.
4. Submit your request. Complete any required forms and submit them, along with the supporting documentation, to your employer or plan administrator.
5. Wait for approval. Your employer or plan administrator will review your request to ensure it complies with IRS rules. The timeframe can vary, but given the nature of hardship withdrawals, the review process should be quick (within days or weeks).
6. Receive funds. If your request is approved, the funds will be distributed from your 401(k) based on your plan’s policies. The distribution method (direct deposit or check) will influence how quickly you receive the funds.

The timing of each step depends on your plan. Generally, the review and approval process may take anywhere from a few days to a few weeks, depending on how quickly you provide the required documentation and how efficiently your plan processes the request.

To ensure you’re prepared, ask your employer or plan administrator for specific details about the process, including required documents and expected timelines.

Pros and cons of a 401(k) hardship withdrawal

Before considering a 401(k) hardship withdrawal, it’s essential to consider the advantages and disadvantages. Some of the pros and cons are as follows:

Pros

• No repayment required

  Unlike a 401(k) loan, you don’t have to repay the money you withdraw. This can be helpful if you’re already struggling to meet financial obligations.

• Quick access to funds

  A 401(k) hardship withdrawal can provide quick access to cash if you face a financial emergency and don’t have access to other sources. You may get funded in days or weeks.

• Could prevent a worse financial situation

  A hardship withdrawal may prevent your financial situation from worsening by covering essential expenses like medical bills or helping you avoid foreclosure.

Cons

• Taxes and penalties

  You’ll owe income taxes on the distribution and may face a 10% early withdrawal. Make sure to plan for these costs so you’re not surprised by a higher tax bill at year-end.

• Reduced retirement savings

  Withdrawing from your 401(k) reduces your retirement savings, potentially affecting your long-term financial security. It also decreases the potential for your account to grow through compounding.

• Contribution limitations

  Some plans may prevent you from making new contributions for six months after taking a hardship withdrawal, further slowing the growth of your retirement fund.

Who should consider a 401(k) hardship withdrawal?

Ultimately, you should consider a 401(k) hardship withdrawal if you have a significant need you need to fund urgently and don’t have access to other funding sources. Remember, the purpose of a 401(k) is to save for your retirement, so it’s best to avoid accessing these funds early. 

Consider a 401(k) hardship withdrawal if…	Reconsider a 401(k) hardship withdrawal if…
✅ You can’t access any other funding.	❌ You can easily access other funding.
✅ You’re funding a covered expense	❌ You’re making a consumer purchase
✅ The consequences of inaction are high	❌ You’re able to rebuild your savings quickly

You can’t access any other funding

If you’ve exhausted all other financial resources, such as savings accounts, personal loans, or even 401(k) loans, a hardship withdrawal may be your only remaining option. 

A 401(k) hardship withdrawal can provide immediate relief in a time-critical situation, such as avoiding eviction or covering the cost of unexpected medical expenses.

You’re funding a covered expense

If your financial need falls within the IRS’s list of qualifying expenses, such as medical costs, funeral expenses, or preventing foreclosure on your home, you may qualify for a hardship withdrawal. 

These are situations where having access to immediate cash could prevent further financial hardship. A hardship withdrawal might help you avoid financial distress, and using it can make perfect sense. 

The consequences of inaction are high

If not withdrawing the funds will lead to severe consequences (e.g., losing your home or being unable to pay for critical medical treatment), it may be worth considering, despite the potential for tax penalties and loss of retirement savings growth.

You can easily access other funding

If you have other accessible resources, like a personal loan, home equity line of credit, or family assistance, you may want to use those options.  

These alternatives can help you avoid the penalties and taxes associated with a 401(k) hardship withdrawal and allow your retirement savings to continue growing.

You’re making a consumer purchase

A hardship withdrawal is inappropriate if your need involves buying consumer goods, such as electronics or a new car. The IRS does not allow consumer purchases as a valid reason for this type of withdrawal. It is better to explore other funding options, like personal loans or budgeting adjustments.

You’re able to rebuild your savings quickly

If your financial need is temporary and you can rebuild your savings relatively quickly through other means, it’s wise to reconsider taking a hardship withdrawal. The long-term consequences of reducing your retirement savings often outweigh the short-term benefits.

Ask the expert

Rand Millwood

CFP®

The biggest negative impact is the loss of the long-term compounding interest on the portion of the funds withdrawn. Depending on your time frame to retirement, even a relatively small withdrawal (i.e. $5,000-$10,000) can reduce your future balance by many multiples of that amount. So if you are considering this as a way to access cash, ensure it is a likely last resort and for a significant need as the impact on your future financial health could be substantially larger.

Alternatives to a 401(k) hardship withdrawal

If you’re facing a financial emergency, consider whether these alternatives are better in the long term than tapping into your 401(k) with a hardship withdrawal.

Home equity line of credit (HELOC)

A HELOC allows you to borrow against the equity in your home with a revolving line of credit. You can access funds as needed during a draw period, usually at a variable interest rate. A HELOC can be a solid option if you have substantial home equity and want flexibility in borrowing, but be aware that your home is at risk if you fail to make payments.

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Home equity loan

A home equity loan provides a lump sum based on the equity you’ve built up in your home. It typically has a fixed interest rate and set repayment term, making it ideal for those who prefer predictable monthly payments. This option is best if you need a large amount at once and have sufficient home equity, but remember that your home is collateral.

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Home equity sharing agreement

Also known as a home equity investment, this product allows you to access your home equity without taking on new debt. Instead of monthly payments, you share a portion of your home’s future value when you sell. This option is suitable for those who want to avoid adding debt or monthly payments, but you might owe more than expected if your home appreciates significantly.

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401(k) loan

Unlike a hardship withdrawal, a 401(k) loan allows you to borrow from your retirement savings with the promise to repay, usually within five years. Interest rates are generally lower than personal loans, and you pay interest back into your own account. However, you risk default if you leave your job and can’t repay promptly, and it may reduce your retirement savings growth.

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Personal loan

Another alternative is a personal loan from a bank, credit union, or online lender. These loans usually come with fixed interest rates and set terms, making it easier to budget. This is a flexible option if you have good credit, but rates can be higher for those with lower credit scores.

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FAQ

Can I withdraw from my 401(k) for any reason?

No, you can’t withdraw from your 401(k) for just any reason without penalties. To qualify for a hardship withdrawal, the IRS requires that you have an immediate and heavy financial need, such as medical expenses, tuition payments, or preventing foreclosure or eviction. 

You may still withdraw funds if you don’t meet these criteria, but you’ll likely face early withdrawal penalties and taxes.

Can I take a hardship withdrawal from other retirement plans?

Yes, you can take a hardship withdrawal from some other retirement plans, such as a 403(b) or 457 plan, if the plan allows it. 

However, rules and eligibility requirements vary by plan, so checking with your plan administrator is important. The criteria for a hardship withdrawal are generally similar to those for a 401(k).

How long does it take to get a hardship withdrawal?

The time it takes to process a hardship withdrawal can vary depending on your plan administrator, but once your request is approved, it typically takes five to 15 business days. 

Some plans may require additional documentation or verification, which could extend the timeline.

Are there fees for withdrawing from a 401(k)?

Yes, fees are often associated with withdrawing from a 401(k). If you’re under 59½, you’ll generally pay a 10% early withdrawal penalty plus regular income taxes on the amount withdrawn. However, if the withdrawal qualifies as a hardship under IRS rules, you may be exempt from the 10% penalty but will still owe income taxes.

Can I still contribute to my 401(k) after a hardship withdrawal?

Yes, you can usually continue contributing to your 401(k) after taking a hardship withdrawal. However, some plans may temporarily suspend contributions following a withdrawal. 

It’s important to check with your plan administrator for specific rules. Regulations changed in 2020, allowing most participants to resume contributions immediately.