Can I Withdraw Money From a 401K If I Have a Hardship?
If you have a 401(k) or similar employer retirement plan, you generally cannot withdraw money before you reach age 59½. Although not required to, some plans let you withdraw money for certain financial and medical hardships before you reach that age.
Unfortunately, you could pay a big price for withdrawing funds early:
- You will owe income tax on the amount you withdraw, just as you would had you withdrawn it in retirement.
- And, if you are under age 59½ and do not have an exception, you will pay a 10% early withdrawal penalty in addition to the income tax.
Remember, income taxes are due on all retirement plan distributions at any age, even hardship distributions.
The distribution is reported to you and the IRS on Form 1099-R.
You can take a 401(k) hardship distribution if your plan allows it and you have what the IRS calls “an immediate and heavy financial need.”
Depending on your retirement plan rules (plan rules vary, check with your plan administrator), these needs may qualify:
- Payment needed to prevent eviction from, or foreclosure on, your principal residence.
- Certain unreimbursed medical expenses
- Burial or funeral expenses
- Cost of repairing damage to your principal residence
- Cost of purchasing your principal residence
- Tuition and related educational fees and expenses
Your hardship can be considered immediate and heavy even if it was foreseeable or voluntary. But, your need is NOT regarded as necessary if you or family members have other financial resources.
You cannot repay the distribution from the plan and in most cases you are not permitted to contribute to the plan for six months after the withdrawal. See the IRS Retirement Plans FAQs regarding Hardship Distributions.
If you take a hardship withdrawal from your plan before age 59½, generally you must pay a 10% early withdrawal penalty in addition to income taxes unless you can qualify for an exception.
Some exceptions to the early withdrawal penalty for qualified retirement plans:
- You are receiving distributions in the form of an annuity.
- You, but not a family member, are deemed totally and permanently disabled.
- The distribution is due to death.
- You have unreimbursed medical expenses that are more than 10% of your adjusted gross income (AGI) if you are under 65 years, or 7.5% of your AGI if you are age 65 or older at the end of the tax year.
- The distribution is due to an IRS levy.
- You took the distribution as a military reservist called to active duty for more than 180 days.
Your hardship distribution can not exceed the amount you need for the qualifying hardship, but it can include the money you need to pay taxes and any penalties that result from the distribution.
Generally, the withdrawal can’t be greater than the contributions you have made to the plan and can’t include the account’s earnings.
However, if your plan allows, the withdrawal can include regular matching contributions and profit-sharing contributions.
Similar hardship withdrawals can be made from 403(b) and 457(b) retirement savings plans, but the rules are determined by each individual employer plan.
These rules do NOT apply to IRAs.