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Withdrawals are allowed from your 401(k) plan if they are considered to be a "hardship withdrawal" and they are allowed by the employer. Employers are not required to provide for hardship withdrawals.

The IRS code that governs 401(k) plans provides for hardship withdrawals only if: (1) the withdrawal is due to an immediate and heavy financial need; (2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); (3) the withdrawal must not exceed the amount needed by you; (4) you must have first obtained all distribution or nontaxable loans available under the 401(k) plan; and (5) you can’t contribute to the 401(k) plan for six months following the withdrawal.

The following four items are considered by the IRS as acceptable reasons for a hardship withdrawal:

  • Un-reimbursed medical expenses for you, your spouse, or dependents.

  • Purchase of an employee’s principal residence.

  • Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.

  • Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.

Hardship withdrawals are subject to income tax and, if your are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.