What qualifies as a hardship for a withdrawal?

The IRS defines hardship as an “immediate and heavy financial need,” including medical bills, tuition, funeral costs, home repairs or preventing eviction.

Is a hardship withdrawal the same as a 401(k) loan?

No. A 401(k) loan must be repaid with interest, while a hardship withdrawal is permanent and cannot be repaid into your account.

How long does it take to get a hardship withdrawal approved?

It usually takes one to two weeks after submitting documentation, depending on your employer’s plan rules.

Can you repay a hardship withdrawal?

No. Once the money is withdrawn, you can’t put it back -- but you can start new contributions to rebuild your savings.

Do you have to prove financial hardship?

Yes. You must document your situation, like medical invoices or eviction notices, to qualify under IRS hardship distribution rules.

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What Is a Hardship Withdrawal? Rules, Penalties and Smarter Alternatives

August 14, 2025

7 min Read

Written by Rudri Patel

Edited by Joe Evans

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Sometimes, emergencies strike and you may need to tap into your retirement savings early. But before you do, it’s crucial to understand what a hardship withdrawal is — and how it could affect your long-term finances.

A hardship withdrawal lets you take money from your 401(k), 403(b) or IRA before age 59½ to cover an immediate, heavy financial need. However, these withdrawals come with strict IRS rules, tax penalties and long-term consequences that can reduce your future nest egg.

Quick Facts: Hardship Withdrawals at a Glance

Feature	Details
Definition	Early withdrawal from a retirement account for urgent financial need
Eligible Accounts	401(k), 403(b), 457(b), IRA (Traditional and Roth)
IRS Criteria	Must cover “immediate and heavy financial need”
Penalty	10% early withdrawal penalty if under 59½, plus income tax
Common Uses	Medical bills, foreclosure prevention, tuition, funerals
Average 401(k) Withdrawal	About $5,000
Percentage of Workers Taking One	2.8% of 401(k) participants

What Is a Hardship Withdrawal?

A hardship withdrawal allows you to take funds from your retirement account to cover serious, immediate expenses, like avoiding foreclosure, paying for medical emergencies or repairing your home after a disaster.

Unlike a loan, this withdrawal doesn’t need to be repaid, but it permanently reduces your retirement balance. The IRS strictly defines what qualifies as a hardship, and withdrawals are taxed as ordinary income.

When It Applies to Retirement Accounts

Hardship withdrawals are available from:

401(k) and 403(b) plans, if your employer allows them
Traditional IRAs, though taxes and penalties apply
Roth IRAs, which allow withdrawal of contributions (not earnings) without penalty

An EBRI report on the 2025 Retirement Confidence Survey found that unforeseen circumstances — like home or car repairs, making ends meet or medical expenses — were cited by a significant portion of those who had taken a loan or withdrawal from their retirement plan.

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What Situations Qualify for a Hardship Withdrawal?

The IRS allows hardship withdrawals only for specific, documented reasons. Here’s a breakdown:

Qualifying Situation	When It Applies	Key IRS Requirement
Medical Expenses for You or Dependents	Covers out-of-pocket medical bills not reimbursed by insurance.	Expenses must exceed 7.5% of your adjusted gross income (AGI).
Preventing Eviction or Foreclosure	Used to pay overdue rent or mortgage payments to avoid losing your home.	Requires documented proof of eviction or foreclosure notice.
Funeral and Burial Costs	Applies when paying funeral expenses for a close family member.	Must be for an immediate family member and fully documented.
Higher Education Tuition and Fees	Covers tuition, fees, and related education costs for you, your spouse, children or dependents.	Must be for qualified education expenses under IRS rules.
Repairing a Primary Residence After Disaster	Helps cover repair costs from a natural disaster that damages your main home.	Eligible only for uninsured expenses not reimbursed by insurance or FEMA.

Tax Consequences and Early Withdrawal Penalties

Hardship withdrawals aren’t free money — they can trigger taxes and penalties that cut deeply into your savings.

Income Tax on Withdrawn Amount

Withdrawals from traditional 401(k)s and IRAs are taxed as regular income, which can increase your annual tax bill.

10% Early Withdrawal Penalty

If you’re under 59½, you’ll also pay a 10% penalty — meaning a $10,000 withdrawal could result in $1,000 lost to penalties, plus taxes.

When the Penalty May Be Waived

The IRS may waive penalties for:

Disability
Certain medical expenses exceeding the AGI threshold
Qualified disasters declared by FEMA
Substantially equal periodic payments (SEPPs) under IRS Rule 72(t)

Hardship Withdrawal Rules by Account Type

Hardship withdrawal rules can vary depending on your retirement account type — here’s what to expect from 401(k)s, IRAs and other plans before you take money out:

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401(k) and 403(b) Rules

Employers decide whether to allow hardship withdrawals. You’ll need to document your financial hardship and may only withdraw your own contributions — not earnings or employer matches.

Roth IRA vs. Traditional IRA

Roth IRA: You can withdraw contributions anytime tax and penalty-free. Earnings, however, are taxable and penalized if withdrawn early.
Traditional IRA: Withdrawals before 59½ incur both income tax and a 10% penalty, unless you qualify for an exemption.

Required Documentation and Approval

Employers may require:

Proof of hardship (e.g., medical bills, eviction notice)
Signed certification that other funding options were exhausted
Employer approval before processing

Alternatives to Hardship Withdrawals

Before withdrawing from your retirement savings, explore these safer alternatives that can preserve your future balance.

1. 401(k) Loans

Borrow from your 401(k) instead of taking a permanent withdrawal. You’ll repay yourself, with interest, usually over five years. However, if you leave your job, the loan must be repaid immediately or it becomes taxable.

2. Use Emergency Savings or Roth Contributions

If you have an emergency fund or a Roth IRA, withdraw contributions (not earnings) first — they’re tax-free and penalty-free.

3. Seek Temporary Forbearance or Assistance

Many lenders, schools, and medical providers offer hardship forbearance programs that pause or reduce payments temporarily.

Pros and Cons of Taking a Hardship Withdrawal

Pros	Cons
Immediate access to cash in an emergency	Permanent reduction in retirement savings
No repayment required (unlike a 401(k) loan)	Subject to income tax and possibly a 10% penalty
Can prevent foreclosure, eviction, or medical bankruptcy	Lost compounding growth potential
May be exempt from penalties in certain cases	Strict IRS documentation rules

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Tips for Minimizing the Impact

If you must take a hardship withdrawal, careful planning can help limit long-term damage.

Withdraw only what you need — request the minimum to resolve the hardship.
Rebuild your retirement fund once your finances stabilize.
Consult a fiduciary financial advisor before finalizing the withdrawal.

As a general rule, workers who tap their 401(k)s early reduce their retirement savings by an average of 15% over a lifetime — underscoring how costly these decisions can be.

Final Take to GO

When it comes to what is a hardship withdrawal, think of it as a last resort — a financial lifeline, not a routine option. While it can help during emergencies like medical bills or foreclosure, it comes at a steep long-term cost: taxes, penalties and lost growth potential.

If possible, explore other options first, like 401(k) loans or temporary forbearance programs and speak with a financial advisor to find the most sustainable solution. Protecting your retirement savings today means greater financial security tomorrow.

FAQs About Building a CD Ladder

Here are the answers to some of the most frequently asked questions about building a CD ladder and how they work:

How much money do I need to start a CD ladder?
- Most banks let you open CDs with as little as $500 to $1,000, though some online banks require no minimum at all. You can start small -- even a three-rung ladder of $3,000 ($1,000 per CD) can help you earn higher returns while staying flexible.
Are CD ladders safe?
- Yes -- CD ladders are among the safest low-risk investment strategies available. Each CD is insured up to $250,000 per depositor, per bank by the FDIC (for banks) or NCUA (for credit unions), so your principal is protected even if your bank fails.
How often can I access my money in a CD ladder?
- That depends on how you structure it. With a standard five-year ladder, one CD matures every year, allowing you to withdraw or reinvest funds annually. You can also build a shorter “mini ladder” for quarterly or semiannual access.
What happens if I need to withdraw money early?
- You can break a CD before maturity, but you’ll typically pay an early withdrawal penalty equal to 3–12 months of interest, depending on your bank’s policy. To avoid penalties, never include money you might need right away in your ladder.
Can I build a CD ladder in an IRA?
- Yes -- many savers build IRA CD ladders to earn steady, tax-advantaged income in retirement. Traditional IRA CDs offer tax-deferred growth, while Roth IRA CDs allow for tax-free withdrawals in retirement if requirements are met.
What if interest rates drop after I build my CD ladder?
- You’re partly protected because only one CD matures at a time. If rates fall, your longer-term CDs stay locked in at higher yields. When rates rise, you can reinvest maturing CDs at the new, higher rates -- keeping your ladder adaptable.
Is a CD ladder better than a high-yield savings account?
- It depends on your goals. CD ladders usually offer slightly higher APYs and predictable returns, while high-yield savings accounts provide instant liquidity. If you want both growth and access, combining the two can be a smart strategy.

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Information is accurate as of Oct. 30, 2025.

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