401(k) Hardship Withdrawal Rules and Exceptions: 2025 Edition
Written by
Angela Mae
Edited by
Joe Evans
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A 401(k) hardship withdrawal lets you take money from your retirement savings to cover an urgent financial need — like medical bills, tuition or preventing foreclosure. But while hardship withdrawals can offer fast relief, they also come with serious long-term costs.
Before tapping your 401(k), it’s important to understand the rules, penalties and alternatives so you can protect your future retirement income.
Here’s what qualifies, what it may cost and how to decide if it’s the right move for you:
Quick Facts: 401(k) Hardship Withdrawals
| Key Rule | Summary |
|---|---|
| Purpose | Access funds for “immediate and heavy” financial needs |
| IRS Definition | Only withdraw what’s required for the expense |
| Common Reasons | Medical, tuition, funeral, home repair, eviction prevention |
| Penalty Exceptions | Medical costs > 7.5% of AGI, disability, disasters |
| Withdrawal Limit | Amount needed to satisfy hardship only |
| Drawback | Money isn’t repayable and reduces retirement growth |
What Is a 401(k) Hardship Withdrawal?
There are a few key elements to keep in mind when you’re figuring out if a hardship withdrawal is your best option.
IRS Definition of “Immediate and Heavy Financial Need”
According to the IRS, a 401(k) hardship withdrawal can only be made when there’s an “immediate and heavy financial need” — and only for the amount required to cover that expense.
Examples include medical costs, tuition payments, funeral expenses, foreclosure prevention or losses from a federally declared disaster.
You must prove that the hardship can’t be covered through other resources, like personal savings, insurance or your spouse’s income.
Difference Between Hardship Withdrawals and Standard Distributions
Hardship withdrawals are different from other 401(k) distributions because they’re meant for emergencies — not general use.
Here’s how they compare:
| Type | Purpose | Penalty Applies? |
|---|---|---|
| Hardship Withdrawal | Covers urgent financial need | No, if it qualifies under IRS rules |
| Early Distribution | Cashing out before age 59½ | Yes — 10% penalty |
| Rollover Distribution | Transferring to another plan | No |
| Required Minimum Distribution | After age 73 | No |
How Plans Determine if You Qualify
Not all 401(k) plans allow hardship withdrawals and eligibility varies by employer. You may qualify if you’ve:
- Turned 59½
- Experienced a qualified hardship
- Left your employer
Your plan’s summary description should outline what qualifies and what documentation you need to provide — like medical bills, tuition statements or foreclosure notices.
Qualified Reasons for a 401(k) Hardship Withdrawal
Each plan defines what counts as an “immediate and heavy” need. The IRS generally recognizes these six categories:
IRS-Approved Hardship Reasons
1. Medical Expenses
You can withdraw funds to pay for unreimbursed medical costs for yourself, your spouse or dependents. If those expenses exceed 7.5% of your adjusted gross income (AGI), the 10% penalty doesn’t apply.
2. Tuition and Education Costs
Covers the next 12 months of tuition, administrative fees or room and board for yourself or dependents.
3. Preventing Foreclosure or Eviction
You can take a hardship withdrawal to pay overdue mortgage or rent payments to avoid losing your home.
4. Funeral Expenses
Covers funeral and burial costs for a family member or dependent.
5. Certain Home Repairs (Casualty Losses)
If your home is damaged in an event like a fire or storm, you can withdraw to pay for essential repairs.
6. First-Time Home Purchase (In Some Plans)
Some employers allow up to 10% of your balance (or $10,000) for a first-time home purchase without penalty — usually for down payments or closing costs.
Taxes, Penalties and Hidden Costs
Even if your withdrawal qualifies as a hardship, it can still impact your long-term savings and tax bill.
Standard 10% Penalty Before Age 59½
If your expense doesn’t meet IRS hardship criteria, you’ll pay a 10% early withdrawal penalty — plus income taxes. Exceptions include permanent disability and medical costs exceeding 7.5% of AGI.
Federal and State Income Taxes
Because 401(k) contributions are pre-tax, every withdrawal counts as taxable income. If you withdraw $10,000, the IRS typically withholds 20% upfront for federal taxes and you’ll owe state tax depending on where you live.
No Repayment Option
Unlike a 401(k) loan, a hardship withdrawal can’t be repaid. Once you take it out, the funds — and their future growth — are permanently gone.
Lost Investment Growth and Compounding
A smaller balance means slower growth. For example:
| Deduction | Amount |
|---|---|
| 10% Penalty | around $2,000 |
| 20% Federal Tax | around $4,000 |
| Total Lost Immediately | $6,000 |
| Net in Hand | $14,000 |
| Lost Growth Over 15 Years (6%) | $27,931 |
That means a $20,000 hardship withdrawal today could cost you nearly $28,000 in lost earnings by the time you retire — not including taxes or penalties.
Research from Boston College economists has estimated a loss of around 30% for regular early withdrawals.
Recent Updates and Rule Changes
Keeping up with tax law can be complicated. Here are a few notable changes from the past few years to keep in mind going forward:
SECURE 2.0 Updates on Penalty Exceptions
Under the SECURE 2.0 Act, individuals affected by federally declared disasters can take penalty-free hardship withdrawals up to $22,000.
You can also repay the funds into your account later in the same amount.
CARES Act History and Temporary Relief
During the COVID-19 pandemic, the CARES Act allowed penalty-free withdrawals of up to $100,000 for pandemic-related hardships.
That provision has expired, but it set the precedent for expanded emergency access in future regulations.
Expanded Emergency Withdrawal Allowances
As of 2025, you can take one penalty-free emergency withdrawal of up to $1,000 annually for “unforeseeable or immediate financial needs.”
If you repay it within three years, you can take another in the same period.
Alternatives to a 401(k) Hardship Withdrawal
Before using a hardship withdrawal, explore safer alternatives that won’t jeopardize your retirement savings.
1. 401(k) Loan vs. Hardship Withdrawal
| Feature | 401(k) Loan | Hardship Withdrawal |
|---|---|---|
| Repayment Required | Yes, within 5 years | No |
| Taxable? | No, if repaid on time | Yes |
| Penalty? | None if repaid | Possible 10% |
| Impact on Retirement | Temporary | Permanent |
| Max Amount | 50% of balance (up to $50,000) | Amount needed for hardship |
2. Home Equity Loan or HELOC
Borrowing against your home can offer lower interest rates than credit cards, with structured repayment terms. However, failure to repay could put your home at risk.
3. Personal Loans or Credit Union Lending
While you’ll pay interest, personal loans often have faster approval and no tax penalties.
4. Emergency Savings Funds
Ideally, use your emergency fund before touching retirement savings. Keeping 3 to 6 months of expenses in a high-yield account can help you avoid 401(k) withdrawals altogether.
When Does a Hardship Withdrawal Make Sense?
So, is a hardship withdrawal actually your best option? Here are some factors to consider before fully opting in:
Last-Resort Option
A hardship withdrawal should only be used when no other options are available. According to Vanguard’s How America Saves 2025 report, 4.8% of participants took a hardship withdrawal in 2024 — an increase from 3.6% in 2023 — underscoring how rare they should be.
If Avoiding Foreclosure or Eviction
If your home is at risk, a hardship withdrawal may help you prevent foreclosure or eviction. You’ll need documentation from your landlord or lender.
In Cases of Major Medical or Family Emergency
If you’ve exhausted other aid, withdrawing for qualified medical expenses may be justified — especially if they exceed 7.5% of your AGI.
Final Take to GO: Proceed With Caution
A 401(k) hardship withdrawal can be a lifeline in a crisis — but it can set back your financial future if used too often. The taxes, penalties, and lost compounding growth can add up to tens of thousands of dollars over time.
Before making any move, exhaust all alternatives first, like loans, insurance claims or emergency savings. If you must withdraw, work closely with your plan administrator and keep documentation of your hardship to ensure IRS compliance.
Final Word: Withdraw only what you absolutely need — and only when you have no other options. A financial advisor can help you weigh the long-term costs, explore loan alternatives and build an emergency fund to avoid needing another hardship withdrawal.
Use the GoBankingRates Retirement Calculator to see how a withdrawal today could affect your future savings.
FAQs About 401(k) Hardship Withdrawals
It's only natural to have some questions when it comes to something as important as retirement. With that in mind, here are some freqnetly asked questions when it comes to hardship withdrawals.- What qualifies for a 401(k) hardship withdrawal?
- According to the IRS, to qualify for a 401(k) hardship withdrawal, you need to show an immediate and heavy financial need. This definition is subjective, and ultimately, it's up to your 401(k) plan custodian to approve your request.
- There are a few circumstances that automatically meet the definition of an immediate and heavy financial need, including medical care expenses, funeral expenses, first-time homebuyer expenses (up to $10,000), payments to avoid foreclosure or eviction from principal residence, and more.
- Can I take a 401(k) hardship withdrawal to pay off credit card debt?
- If your plan administrator allows it. You will need to prove that your debt is causing an immediate and heavy financial need and that you have exhausted all other sources of funding. But in many cases, this may not qualify for a hardship withdrawal.
- Plus, you're usually better off finding a 0% interest credit card and doing a balance transfer to avoid high interest rates.
- How can I prove hardship for a 401(k) withdrawal?
- You first need to tell your 401(k) plan administrator about your immediate and heavy financial need. This may require submitting documentation of financial hardship or other proof that you need access to your 401(k) funds early.
- Plus, you may need to submit proof that you've exhausted other avenues of funding, such as loans, liquidating assets, or nontaxable distributions from other plans.
- How do I avoid a 20% tax on my 401(k) withdrawal?
- If you're withdrawing funds from your traditional 401(k) account, you typically will be on the hook for income taxes owed. And if you're taking an early withdrawal, you may also be assessed an additional 10% IRS penalty tax.
- To avoid this extra 10% tax, you'll need to make sure your distribution is eligible, such as being used for a first-time homebuyer down payment, medical expenses or qualified higher education expenses. But you'll still owe ordinary income tax on any traditional 401(k) withdrawal. To lower the tax owed, it's best to work with a licensed tax professional to help prepare your return.
Information is accurate as of Oct. 22, 2025.
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- Vanguard "How America Saves 2025"
- Kiplinger "New 401(k) Withdrawal Rules to Know in 2025"
- The Center for Retirement Research at Boston College "New study on leakages narrows the range of estimates"
- IRS "Retirement topics - Hardship distributions"
- IRS "Hardships, early withdrawals and loans"
- IRS "401(k) resource guide - Plan participants - General distribution rules"
