What Is a Hardship Withdrawal? Rules, Penalties and When You Can Take One
Written by
Rudri Patel
Edited by
Joe Evans
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If you’re facing a financial emergency, you might be wondering: What is a hardship withdrawal and should I take one? A hardship withdrawal is an early withdrawal from certain retirement accounts, like a 401(k) or 403(b), to cover an immediate and heavy financial need. Think medical bills, avoiding foreclosure, funeral costs or repairing your main home after a disaster.
The catch? You’ll owe ordinary income tax on the money you take out and, if you’re under 59½, a 10% early withdrawal penalty, unless you qualify for an IRS exception. That’s why understanding the rules before you dip into your nest egg is critical.
Quick Answer: What Is a Hardship Withdrawal?
A hardship withdrawal is a permanent distribution from a retirement plan due to an urgent financial need.
Key Facts:
- Allowed only for IRS-approved reasons.
- You can withdraw only the amount you need.
- Once withdrawn, the money can’t be repaid into your account.
- Subject to ordinary income taxes and possibly a penalty.
According to Fidelity, the average hardship withdrawal in 2023 was about $5,500, with avoiding foreclosure and paying medical bills among the top reasons.
IRS Rules for a Hardship Withdrawal
The IRS requires two things:
- The expense must be immediate and serious.
- You can only withdraw the exact amount needed to cover it.
Common Qualifying Reasons
- Medical expenses for you, your spouse or dependents.
- Funeral or burial costs.
- Preventing foreclosure or eviction from your primary home.
- Repairing your home after a federally declared disaster.
- Tuition, room and board for higher education.
- Purchasing your primary residence.
Not all employer plans allow hardship withdrawals. About 15% of plans don’t offer them at all. Always check with your HR department first.
How Rules Differ by Account Type
| Account Type | Allowed? | Key Rules |
|---|---|---|
| 401(k) | Yes, if the plan allows | Must meet IRS criteria; taxes owed; penalty possible |
| 403(b) | Contributions can be withdrawn anytime, tax and penalty-free; earnings are subject to rules | Same as 401(k); investment restrictions may apply |
| 457(b) | Limited | Often only for “unforeseeable emergencies” |
| Roth IRA | Contributions can be withdrawn anytime tax and penalty-free; earnings are subject to rules | N/A |
Taxes and Penalties You Need to Know
Here are some of the taxes and penalties you’ll need to pay if you’re considering an early withdrawal.
Income Taxes
Hardship withdrawals are taxed as ordinary income in the year you take them. Large withdrawals could push you into a higher bracket.
Early Withdrawal Penalty
If you’re under 59½, expect a 10% penalty, unless you meet exceptions like:
- Permanent disability
- Medical expenses above 7.5% of your AGI
- Qualified disaster withdrawals
- Birth or adoption of a child
IRS data shows Americans paid over $5.7 billion in early withdrawal penalties in 2022. That’s money that could have stayed invested for retirement.
Pros and Cons of a Hardship Withdrawal
| Pros | Cons |
|---|---|
| Quick access to funds in an emergency | Permanently reduces retirement savings |
| No repayment required | Taxed as ordinary income |
| Can prevent foreclosure or eviction | May owe a 10% penalty if under 59½ |
| Covers expenses insurance won’t pay | Misses out on compounding growth |
Vanguard estimates that pulling $10,000 from your 401(k) at age 45 could mean losing more than $40,000 in potential retirement savings by age 65 (assuming 7% annual growth).
Alternatives to Hardship Withdrawals
It’s fair to say that money is tight for many these days. A 2023 Federal Reserve report found that 37% of U.S. adults would struggle to cover an unexpected $400 expense without borrowing or selling something. While dipping into your savings might seem like a viable option, it’s vital to avoid it if at all possible.
Before touching retirement funds, consider:
- 401(k) loan: No taxes or penalties if repaid, but repayment is required with interest.
- Emergency savings: No tax consequences.
- Roth IRA contributions: Withdraw contributions (not earnings) tax and penalty-free.
- Forbearance or deferral programs: Lenders may offer temporary relief on mortgages, credit cards, or student loans.
How to Minimize the Damage if You Take One
According to Vanguard, only 1.2% of 401(k) participants took a hardship withdrawal in 2022, showing it’s usually a last-resort move. If you do need to pull some of that money, however, here are some ways to minimize the damage:
- Withdraw the bare minimum: Your retirement funds are hard to replace.
- Boost contributions later: Make a plan to replenish your account when you recover.
- Get professional advice: A financial planner can help you evaluate all options.
Final Take to GO: Is a Hardship Withdrawal Right for You?
A hardship withdrawal can be a financial lifeline in a crisis, but it comes at a cost: taxes, penalties and lost future growth. If you’re considering one, explore all other options first, like loans, emergency funds or payment deferrals. And if you do take one, withdraw only what’s necessary and have a plan to rebuild your savings.
If you’re considering it, first ask yourself:
- Is there another funding source I can use?
- Can I take a 401(k) loan instead?
- Will this withdrawal put my long-term retirement at risk?
For more strategies to protect your retirement savings, check out our guide to retirement planning after 50.
FAQs About Hardship Withdrawals
Here are the answers to some of the most frequently asked questions about hardship withdrawals and how they work:- What qualifies as a hardship for a withdrawal?
- According to the Internal Revenue Service (IRS), you must demonstrate an immediate and heavy financial need to qualify for a hardship withdrawal. Funeral costs, medical expenses, education and tuition costs are some of the qualifications. Repairing damage to a primary home or preventing eviction or foreclosure are other qualifying reasons.
- Is a hardship withdrawal the same as a 401(k) loan?
- No. With a 401(k) loan, you must repay the amount you borrowed with interest. With a hardship withdrawal, the money is permanently withdrawn and you cannot redeposit it.
- How long does it take to get a hardship withdrawal approved?
- It may take between seven to 14 business days, depending on your plan administrator. Much of the timing depends on how quickly you can provide documentation.
- Can you repay a hardship withdrawal?
- No, once you take a hardship withdrawal, you cannot repay or redeposit it in your 401(k).
- Do you have to prove financial hardship?
- Yes, most plans require documentation. This can include bills, eviction notices or medical expense statements.
Data is accurate as of Aug. 14, 2025, and is subject to change.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Fidelity "Fidelity Q3 2023 Retirement Analysis: Workers Commit to the Long-Term While Navigating Uncertain Markets and Short-Term Challenges"
- IRS "Retirement plans FAQs regarding hardship distributions"
- IRS "Individual Income Tax Returns Complete Report 2022"
- Vanguard "When can I retire?"
- U.S. Federal Reserve "Report on the Economic Well-Being of U.S. Households in 2022 - May 2023"
- CNBC "401(k) ‘hardship’ withdrawals hit record high, Vanguard says — another sign households feel the pinch of inflation"
