Because of the way that 401(k) plans work, you can't put the money back in the 401(k). And, while hardship withdrawals are allowed, they are not exempt from the 10% penalty for early withdrawal.
If your modified AGI is less than $60,000 (single) or less than $96,000 (married filing jointly) then you can open an IRA and *contribute* up to $5,500 per year and take a tax deduction for it. Assuming you withdrew $10,000 and had $3000 withheld for taxes, if you put $5500 into an IRA, then the other $4500 becomes taxable income. Your tax plus penalty will be less than the $3000 that was withheld, so you would get a partial refund.
To count as an IRA rollover, it has to be done in 60 days from the withdrawal (not 120 days, that only applies to an IRA with the first time home buyer exception). And you need to tell the plan administrator that it is a rollover when you open the account. Because the rules for having an IRA and a 401(k) at the same time are complicated, I'm unclear on whether you can actually roll over more than $5,500 into a new IRA.
@Critter#2 @TaxGuyBill @DoninGA ??? If you can do a rollover, then pay as much as you can. If you withdrew $10,000 with $3,000 withheld, and you only roll over $7,000, the other $3000 is a taxable distribution. But the tax and penalty will be less than the withholding so again, you will get a partial refund.
If your income is more than the limit above, you may not be able to roll the money into a traditional IRA. You would have to use a Roth IRA. That's not a bad option, but you won't have access to the money for at least 5 years, and the distribution will still be taxable. (But I think you can avoid the extra 10% penalty.) You might just decide to eat the tax and keep the money in a savings account or CD so you have it later. Maybe there's no good houses now, but you might find one in the next 5 years, and if you do a Roth, you'll have problems withdrawing it before then if you needed it.
