401k Hardship Withdrawal Guide

There are withdrawal restrictions for money held in a 401(k) plan or a 403(b) plan.  Plans must allow for distributions upon attainment of the plan’s normal retirement age, death or disability.  Most plans also offer distributions upon termination from service with the employer sponsoring the plan.  Plan sponsors may also elect to add a “hardship withdrawal” option for employees in their 401(k) or 403(b) plan.  This is an optional provision that must be outlined in the plan document before it is available to the participants of the plan.


The IRS regulations outline specific reasons for which a plan participant may request a hardship withdrawal from the plan.  These reasons may apply to the participant in the plan, their dependents, and in some cases, their primary beneficiary.

  • Medical expenses that are not covered by insurance401k hardship withdrawal
  • Purchase of a primary residence
  • Post-secondary education expenses (up to 12-months of expenses may be requested)
  • To prevent eviction or foreclosure on your primary residence
  • Burial or funeral expenses (expenses for a parent are included)
  • To recover from a catastrophe (e.g., flood, hurricane, and other sudden mother-nature type events)
  • Qualified reservist
    • Available to a reservist called to active duty for 180 days or more
    • Withdrawal is taken during active duty


The IRS regulations are very clear that a hardship withdrawal from the 401(k) or 403(b) plan can only be enough to satisfy the immediate and heavy financial need, plus income taxes (see below for more on taxation of hardship withdrawals).  Furthermore, the maximum amount that may be withdrawn is calculated as follows:

  • Total employee elective deferrals (personal contributions to the plan) as of the date of the request, reduced by;
  • Any previous distributions of funds from the employee elective deferral source within the plan

Please note that the maximum withdrawal amount excludes investment earnings, contributions from Qualified Non-Elective Contributions, Qualified Matching Contributions, and Prevailing Wage fringe contributions.  See Internal Revenue Code §401(k)(2) and Reg. 1-401(k)-1 for more information.  These regulations apply to both 403(b) and 401(k) plans.


Yes, all other resources available to the participant in the plan must be tapped before a hardship withdrawal can be approved.  The plan sponsor should ask for verification that the participant does not have access to:

  • Reimbursement from an insurance company
  • Other assets that may be liquidated
  • Discontinuation of elective deferrals
  • Distributions that may be available from other qualified or non-qualified plansNew Call-to-action
  • A loan from the plan or a financial institution (bank or credit union)

The burden of proof is on the plan participant, but the plan sponsor should substantiate the request before approving the withdrawal.  IRS auditors will ask for such documentation in audit.

It is recommended that the plan sponsor ask for source documents, such as:

  • Summary of the hardship event, and expenses related to it
  • Certification from the participant that the information is true and accurate
  • Receipts or invoices
  • Title insurance documents

If it is discovered after-the-fact that a hardship withdrawal was processed that is in violation of the regulations, the plan sponsor can request time to remedy the error through the IRS Employee Plans Compliance Resolution System.


Hardship distributions are subject to regular income tax in the year they are withdrawn.  If the participant is not over age 59 ½ then early withdrawal excise taxes apply too.  The distribution will be reported on a Form 1099R, and will need to be reported on the participant’s income tax return for the year of withdrawal.

Hardship distributions are not eligible for rollover, so mandatory withholding on the withdrawal amount do not apply.  The participant may request a portion be withheld for taxes if they wish.  Distributions from a Roth source within the plan may also be subject to taxes on the investment earnings if a triggering event and five-year holding period have not been satisfied.

After taking a hardship distribution, the participant must be suspended from making further contribution for a minimum of six-months. 


A 401k hardship withdrawal is the only way to get 401(k) money out of the plan prior to age 59 ½ other than required compliance corrections.  The reasons for hardship, and amounts available for withdrawal are outlined clearly in the IRS 401(k) regulations and the same rules apply to 403(b) plans.  The plan document must include a hardship withdrawal provision before the employee can request a distribution due to hardship; the plan provisions are not a protected benefit and may be revised at any time at the discretion of the plan sponsor.  The documentation for hardship withdrawals must be provided by the plan participant and approved by the plan sponsor. 

If you have questions about your 401(k) plan or 403(b) plan; whether it is about hardships, other withdrawals, or any plan design issue, please feel free to contact our pension professionals at Benefit Resources.  We have been working with employers to design state-of-the-art retirement plans since 1987, and we would love to help you too.


You might also like:New Call-to-action

401k Providers - what to look for and what to avoid

Common Retirement Plan Problems and How to Fix Them

Best Practices In Pension Administration


Image courtesy of iosphere / FreeDigitalPhotos.net