401k Hardship Distribution Rules

February 06, 2026 by Jennifer Rose, EA

401(k) Hardship Withdrawals: What You Need to Know Before Taking Money Out

If you're in a tough financial spot, you might be thinking about pulling money from your 401(k). But before you do, it’s important to understand what a hardship withdrawal is. 

A hardship withdrawal is when you permanently take money out of your retirement account because of a serious and immediate financial need. You don’t pay it back, and you can’t roll over any excess withdrawn if you took out more than you needed. (Please note that a hardship withdrawal is different from a 401(k) loan, which lets you borrow from your 401(k) account and repay the amount over time, usually with interest. As long as you follow the rules, you won’t owe taxes or penalties.)

Here’s where hardship withdrawals can get expensive:

• You’ll owe income tax on the money you take out, unless it’s from Roth contributions. 
• You might also owe a 10% early withdrawal penalty if you're under the age of 59½. 
• And even though 10% is usually withheld for taxes, that’s just an estimate. Your actual tax rate could be higher—or lower—and the withdrawal could even push you into a higher tax bracket, meaning you’ll owe more when you file your return. 

So, while hardship withdrawals are an option, they may have real financial consequences. That’s why the IRS has strict rules about when they’re allowed.
 

When Can You Take a Hardship Withdrawal?

To qualify for a hardship withdrawal, two things must be true:

1. You have an immediate and heavy financial need. 
2. You’re only taking just enough money to cover that need (plus taxes). 

Your employer decides whether your situation qualifies, based on IRS rules and your plan’s terms. You may also need to show that you’ve tried other options first—like using savings, insurance, or taking out a loan. You will generally need to certify in writing the reason for the withdrawal.  

 

Safe Harbor: Automatically Approved Reasons

The IRS has a list of situations that are automatically considered valid for a hardship withdrawal. These include:

• Medical expenses for you, your spouse, dependents, or beneficiary 
• Buying your first home (excluding mortgage payments) 
• Tuition, related fees, and room and board for up to 12 months of higher education for you, your spouse, children, dependents or primary beneficiaries 
• Preventing eviction or foreclosure on your principal residence 
• Funeral or burial expenses for a close family member or beneficiary 
• Major home repairs due to a disaster (such as a fire or flood) 

What Doesn’t Count?

Not everything qualifies. For example, the IRS states the following don’t count as “immediate and heavy” financial needs: 

• Buying a car 
• Taking a vacation 
• Upgrading your home entertainment system 

What Part of Your 401(k) Can You Use?

Hardship withdrawals usually come from:

• Your elective deferrals, meaning the money you contributed.  While this is generally limited to the amount you put in, it can also be reduced by any previous hardship withdrawals you have taken. 
• Employer matching or nonelective contributions, meaning the money your employer contributed, but only if your plan allows it.  

You usually can’t withdraw investment earnings on your contributions unless your plan specifically permits it.
 

How to Apply for a Hardship Withdrawal

1. Check your plan to see if hardship withdrawals are allowed. 
2. Gather documentation to prove your financial needs. 
3. Submit your request through your HR department or plan provider. 
4. Wait for approval—some plans allow self-certification; others require paperwork. 

Can You Avoid the 10% Early Withdrawal Penalty?

Yes—in some cases, you can take a hardship withdrawal without paying the 10% penalty. These exceptions include:

• Permanent disability 
• Leaving your job at the age of 55 or older (the “Rule of 55”) 
• Unreimbursed medical expenses that exceed 7.5% of your income 
• Qualified Domestic Relations Order (QDRO) in a divorce 
• Domestic abuse victims (up to $10,000 or 50% of your account) 
• Federally declared disaster losses (up to $22,000) 
• Emergency personal expenses (one withdrawal per year up to $1,000) 
• Substantially Equal Periodic Payments (SEPPs) after separation from service 

If your plan doesn’t automatically code your withdrawal as penalty-free, you’ll need to file IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and other Tax-Favored Accounts, with your tax return to claim the exception.
 

What about Roth 401(k) Hardship Withdrawals?

In addition to traditional 401(k) retirement plans, a qualified employee can also contribute to a Roth 401(k), if available through their employer. Roth 401(k) plans work similarly to Roth IRAs. Generally, contributions are made with after-tax dollars, meaning you do not get a deduction for contributing. As such, if certain requirements are met, earnings withdrawn are not subject to income tax. Just like traditional 401(k) plans, Roth 401(k) plans permit hardship withdrawals if the participant has an immediate and heavy financial need and the withdrawal is just enough to meet that need.
 

Roth 401(k) Hardship Withdrawal Rules

Contributions vs. Earnings:

• Contributions are funded with after‑tax dollars and can be withdrawn anytime tax‑ and penalty‑free, even for hardship. Keep in mind that only distributions from Roth 401(k) contributions are tax and penalty-free if the qualification rules below have not been met.  
• Earnings are subject to taxes and penalties unless the withdrawal is a qualified distribution, which requires:  
  • The participant be age 59½ or older, and 
  • No qualified distributions taken within the first five years of establishing the designated Roth account. This is known as the five‑year holding period.  
• Plan participants who become disabled and subsequently take a distribution before age 59½ or the five-year holding period is met will not be required to include the income on their return and will not be assessed a penalty. If the plan participant passes away before age 59½ or the five-year holding period is met, distributions to a beneficiary or the plan participant’s estate will not be subject to income tax or a penalty. 

Non‑Qualified Earnings Withdrawal:

• Earnings withdrawn early are treated as taxable income. Plus, there is a 10% penalty if the plan participant is under 59½, regardless of hardship status. 
• The default 10% withholding on taxable portions still applies, unless you submit Form W‑4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions, to adjust it. 

Final Thoughts

Hardship withdrawals can be a lifeline in a crisis—but they come with long-term costs. Before you take money out of your 401(k), make sure you understand the tax impact, the penalties, and whether you qualify for an exception. And if possible, explore other options like a 401(k) loan or emergency savings first. If you find yourself in a situation where you may need to take a hardship withdrawal, please contact the HR department at your work for more information on the process. Also, it is important to consult with a tax professional who can help guide you on the tax implications, so you do not end up with a surprise tax bill from the IRS or state tax agency when you file your income tax return.