Retirement Retirement Planning

6 Times a 401(K) Hardship Withdrawal Makes Sense

Leaning on your 401(k) during a true emergency could be the right move for your finances.

By Sarah Sharkey

Edited by Chris Kissell

Updated Jan. 22, 2025

As you stash savings into your 401(k), the goal is to build a nest egg for retirement. But sometimes, life throws a curveball your way, and you have to lean on your resources.

When this happens, it’s often possible to take a 401(k) hardship withdrawal.

Here are some situations where it might make sense to pursue a 401(k) hardship withdrawal — and how to eliminate some money stress and get your retirement savings back on track later.

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What is a hardship withdrawal?

A 401(k) hardship withdrawal involves tapping into your retirement savings so you can cover an immediate and pressing financial need.

In contrast to a 401(k) loan — which involves paying yourself back — a 401(k) hardship withdrawal doesn’t allow you to put the money back into the account later.

You will have to pay taxes on the amount you withdraw. In some cases, a 401(k) hardship withdrawal does not come with any penalties. But in other situations, you will have to pay an additional 10% tax if you make the withdrawal before the age of 59½.

Many 401(k) plans offer the hardship withdrawal option, but others do not. You will need to read the fine print of your employer’s 401(k) to determine if it's an option for you.

Below are some situations where taking a 401(k) hardship withdrawal can make sense and might even help you prepare yourself financially.

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When you have soaring medical bills

If a health issue is forcing you to deal with sky-high medical bills, tapping into your 401(k) funds might seem like the only option.

Many plans allow savers to make a hardship withdrawal to cover medical costs. You will not have to pay an extra 10% tax for this withdrawal.

If you develop a disability

Developing a permanent disability can lead to significant changes in your life. As you adapt to this new reality, you might need to lean on your 401(k) to cover the associated costs.

This type of withdrawal is not subject to an extra 10% penalty.

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When you plan to return to school

Returning to school can mark the beginning of a new chapter in your financial life. It’s possible that you will start earning more money after you graduate, which can make the upfront costs worth it.

Depending on your situation, you might be able to use your 401 (k) to pay for your or your spouse’s tuition and higher education-related expenses.

When you have funeral expenses

Funeral expenses can come out of nowhere. If you don’t have the money on hand to cover the costs, leaning on your 401(k) savings can be an option.

You will owe the additional 10% tax for this type of withdrawal.

When you hope to prevent a foreclosure

A foreclosure is a traumatic event. For many, it’s something to avoid at all costs.

If you are facing foreclosure and have no other options, tapping into your 401(k) could save the day. But you will owe the extra 10% tax in this case.

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When you need to repair your home after a disaster

Even if you have insurance, repairing your home after a natural disaster can be expensive. If you don’t have other savings to tap into, a 401(k) withdrawal can help you pay for the expensive repair bills.

If you live in a federal disaster area, you may withdraw up to $22,000 without penalty.

What are the disadvantages of a hardship withdrawal?

In order to take a hardship withdrawal, your employer must agree that you are facing an immediate and heavy financial need.

Additionally, the withdrawal amount is usually limited to what is strictly necessary to get the saver through the rough patch.

But even if you can take a hardship withdrawal, there are some disadvantages to consider.

First, the 10% penalty applies to many hardship withdrawals, although there are other situations where it does not. If you aren’t withdrawing the funds for a penalty-free reason, it’s worth considering other options for getting the money.

Other disadvantages include the lost opportunity to use the funds to grow your nest egg. Unless you do some serious catching up, you could get stuck without sufficient resources for retirement.

How to recover from a 401(k) hardship withdrawal

After taking a 401(k) hardship withdrawal, it’s important to make a recovery plan. Withdrawing funds early can put you behind in your retirement savings.

If you determine you aren’t on track, it’s time to boost your savings. You can do this either by increasing your income or decreasing your expenses. Start by looking for obvious places to slash your expenses.

Also, consider also picking up extra hours at work, asking for a raise, or taking on a part-time job or side hustle that helps you earn extra money.

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