Can I Continue to Contribute to 401(k) After a Hardship Withdrawal?

Because a 401(k) plan is a tax-advantaged retirement account, the Internal Revenue Service governs when and how contributions and withdrawals are made. Although the IRS does not require plan sponsors to offer hardship withdrawals to participants, those who do must follow the agency's rules for the special distributions. These rules spell out the reasons allowed for hardship withdrawals and the level of 401(k) plan participation allowed after taking one.

Continued Contributions

The IRS prohibits contributions to a 401(k) plan for six months after receiving a hardship withdrawal. Those who take such a withdrawal are likely to experience financial consequences. Unlike 401(k) funds that are rolled over to other retirement accounts, hardship withdrawals are included in the employee's gross income for the year. Additional taxes may be assessed on the money as an early distribution because the funds are not returned to the account.

Hardship Withdrawal

The IRS allows hardship withdrawals for participants who have an "immediate and heavy financial need." This includes the repair of damage to a principal residence, prevention of eviction from or foreclose on the principal residence, certain medical expenses and educational expenses. It also includes funeral and burial expenses.

Verification of Need

The IRS requires plan participants to exhaust other resources, such as a 401(k) account loan, before requesting a hardship withdrawal. The "deemed necessary" standard, which is included in most plan rules, allows employers to accept a participant's statement of need as sufficient. Plans may require employees to provide documentation of the need, such as eviction or foreclosure notices, mortgage documents, repair estimates or tuition bills. The maximum amount available for a hardship withdrawal includes only the money contributed by the employee. Investment earnings and employer-matching contributions are not included.


The reason for the hardship withdrawal determines, in part, the appropriateness of alternate resources. For example, someone who is buying a primary home will not be required to take a 401(k) loan, since a loan can have a negative effect on his mortgage application. However, someone who chooses to take a loan for other hardship reasons may continue to make contributions to his 401(k).