A hardship withdrawal is a distribution from your 401(k) account that is allowed only under limited circumstances defined by the IRS. These withdrawals are intended to help you cover an immediate and heavy financial need, and the amount taken must be necessary to meet that need. Not all plans allow hardship withdrawals—check your plan’s rules before requesting one.

Who This Applies To

This information applies to 401(k) plan participants who:

  • Are in a plan that allows hardship withdrawals,

  • Meet the IRS-approved requirements for hardship,

  • Have not yet reached age 59½, and

  • Do not have sufficient rollover funds available for withdrawal (since rollover funds can usually be withdrawn at any time without restriction).

IRS-Approved Reasons for Hardship Withdrawals

The IRS considers the following situations as qualifying financial hardships:

  • Medical expenses for you, your spouse, dependents, or beneficiary.

  • Costs directly related to the purchase of your primary residence (excluding mortgage payments).

  • Tuition, educational fees, and room and board for the next 12 months of post-secondary education for you, your spouse, children, or dependents.

  • Payments needed to prevent eviction or foreclosure on your primary residence.

  • Burial or funeral expenses for your deceased parent, spouse, child, or dependent.

  • Certain expenses to repair damage to your primary residence that would qualify as a casualty deduction under IRS rules (such as damage from a natural disaster or flood).

  • Expenses or income loss due to a federally declared disaster, if your principal residence or workplace is in the disaster zone and eligible for individual assistance.

📌 Important: The amount of a hardship withdrawal is limited to the amount needed to cover the immediate financial need, including taxes and penalties. 

  • Your request can include the amount needed to cover both your hardship and taxes.

    • By default, 10% federal withholding applies to hardship withdrawals unless you elect otherwise.

    • Formula if you want to “gross up” your withdrawal:

      Total Request=Hardship Amount Needed divided by 1 minus Withholding Rate​

      Example: If you need $8,000 and a 10% withholding applies → $8,000 ÷ 0.90 = $8,889 request.

How to Request a Hardship Withdrawal

If your plan allows hardship withdrawals, you can submit a request online:

  1. Log in to your account.

  2. Go to 401(k) > Withdraw/Rollover Out > Hardship Withdrawal> Apply Now.

  3. On the Withdrawal Method page, select Cash Payout.

  4. Follow the onscreen instructions and submit your request.

Documentation Requirements for Hardship Withdrawals

Thanks to the SECURE Act, employers sponsoring a 401(k) plan have the option to allow participants to self-certify that their request meets the immediate and heavy financial need requirements. While you may only need to submit an affidavit when requesting a hardship withdrawal, you should still be prepared to provide supporting documentation if requested by:

  • Your Plan Sponsor,

  • The IRS, or

  • The Department of Labor (DOL) during a personal tax return review or plan audit.

Documentation by Hardship Reason

Here are some examples of documentation that could be provided for each type of hardship:

  • Medical/Dental Expenses

    • Copies of medical bills and/or explanation of benefits from your insurance carrier.

    • If insurance does not cover the expense: a denial letter from the insurer.

    • If no insurance was elected: proof from your employer.

    • If for a spouse or dependent: tax documentation or official paperwork proving the relationship.

  • Home Purchase

    • Copy of the purchase agreement signed by both buyer and seller, including the closing date and balance due.

  • Post-Secondary Education

    • Tuition statement or school invoice on institutional letterhead for the current or upcoming quarter/semester (up to 12 months).

      • If for a spouse or dependent: tax documentation or official paperwork proving the relationship.

  • Foreclosure/Eviction

    • Notice of foreclosure or eviction on official letterhead showing the due amount and date.

    • If renting from a private landlord: copy of the lease agreement.

      • If notice is in a spouse’s name: marriage certificate or tax documentation showing relationship.

  • Funeral Expenses

    • Bills or invoices in your name.

    • Proof of relationship to the deceased (such as tax documentation or official paperwork).

  • Home Repair (Casualty Loss)

    • Repair estimate.

    • Insurance company denial of coverage letter.

📌 Tip: Even if not required at the time of request, keeping these documents on file protects you in case of a future audit.

Tips for Faster Processing

To help ensure your request is approved and funded as quickly as possible:

  • Notify your Plan Administrator/Plan Sponsor in advance.

    • They will need to review and approve your request.

    • You can find your plan sponsor’s name on your Summary Plan Description (SPD) or by logging into MyUbiquity.com and checking your plan details.

  • Request a wire transfer instead of a check.

    • Confirm your wire instructions with your bank in advance to avoid delays.

Tax Rules for Hardship Withdrawals

  • Federal Withholding:

    • Hardship withdrawals are not subject to mandatory 20% withholding like other plan payouts.

    • A standard 10% withholding applies by default, though you can adjust this election.

  • Income Inclusion:

    • Withdrawals are treated as regular taxable income for the year.

  • Roth 401(k) Rules:

    • Contributions: Always distributed tax-free.

    • Earnings: Taxable and subject to a 10% penalty unless the distribution is “qualified” (you are at least 59½ and have held the Roth account for at least five years).

    Example:

    • You contributed $12,000 to a Roth 401(k) and have $2,000 in earnings.

    • You request a $5,000 hardship withdrawal at age 40.

    • The first $5,000 is taken from your contributions, so it is not taxable.

    • If instead you withdrew $14,000, the first $12,000 (contributions) is tax-free, but the remaining $2,000 (earnings) would be taxable and subject to the 10% penalty, because you have not yet met the age 59½ and 5-year Roth holding requirements.

  • Additional Early Withdrawal Penalty:

    • If you are under age 59½, the IRS assesses a 10% penalty on top of income taxes.

    • This penalty is applied when you file your tax return—not at the time of distribution.

  • State Taxes:

    • Depending on your state’s laws, additional state withholding may also apply.

What Happens After You Take a Hardship Withdrawal

  • Processing Time: Once approved, hardship withdrawals are typically processed within a few business days.

  • Taxes: The amount withdrawn is subject to federal and state income taxes. You will receive a form 1099-R from your plan's custodian no later than February of the following year. 

    • The withholding taken is only a prepayment toward your eventual tax bill.

    • Depending on the withdrawal size, the taxable income may place you in a higher bracket when you file your tax return.

  • Penalties: If you are under age 59½, the withdrawal may also be subject to an additional 10% IRS early withdrawal penalty.

  • Impact on Savings: Unlike a loan, hardship withdrawals cannot be repaid to your account. This permanently reduces your retirement savings balance and future growth potential.

Need Help?

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