Can a Person Draw Out Their Retirement for a Hardship?

The cost of emergency surgery might qualify you for a hardship withdrawal.

surgery image by Andrey Rakhmatullin from

The U.S. tax code allows, but does not require, employers to permit hardship withdrawals from the 401(k), 403(b) and 457(b) retirement plans they offer their employees. If your retirement funds are in an IRA, you can take a distribution at any time without providing a reason to the financial institution holding your account. Just keep in mind that having permission to draw out retirement funds early does not exempt you from taxes and penalties.


Hardship withdrawals from 401(k) and 403(b) retirement plans are guided by the same rules. If your employer allows an early distribution from either fund when you hit a bump in the road, he must define in writing what “bumps” are covered. For example, one company might consider tuition assistance and medical expenses valid reasons for an early retirement withdrawal. Another employer, on the other hand, might not regard educational debt as a hardship. If you work for a non-federal government or nonprofit agency, you may be covered by a 457(b) retirement plan. Under this type of plan, hardship distributions are only allowed for unexpected emergencies. Your employer must specify which unforeseeable events qualify for an early retirement withdrawal.

IRS’ Hardship Guidelines

Despite the leeway your employer has to define hardship for the purpose of an early retirement withdrawal, he still has to base his policy on IRS’ general rules. Knowing what they are will help you understand your chances of having your request approved. In the case of a 401(k) or 403(b) plan, you can tap into your retirement fund if you have an immediate and what the IRS calls a heavy need for cash. Your employer can allow you to withdraw your retirement to pay medical bills, buy a home or prevent homelessness, and for funeral expenses. You may take an early retirement distribution to meet your or your dependents’ and spouse’s needs, as well as the needs of any other retirement beneficiaries. Under a 457(b) plan, an unforeseeable event such as illness or an accident must create a hardship for you to be eligible for an early retirement withdrawal.

How to Apply

Follow the steps laid out by your employer to request a hardship withdrawal. In general, your statement that you have a financial need that qualifies for an early distribution is sufficient. But your employer cannot approve your request if he knows you have assets you can turn into cash or the ability to free up the necessary money by other means. Under a 401(k) or 403(b) plan, the assistance you receive cannot be more than what you have contributed to the account. If you have a 457(b) retirement account, your withdrawal cannot exceed the cost of taking care of your unforeseeable emergency.

Financial Consequences

Besides reducing your retirement savings, a hardship withdrawal is also treated as gross income and is taxable -- unless you withdraw the money from a Roth IRA. In addition, you might lose your right to contribute to your retirement fund for six months following the distribution. Also, the IRS might assess an early-withdrawal penalty even if the money comes from an IRA, a type of fund that allows you to take contributions any time. If you are considering a hardship withdrawal, discuss the financial consequences with a tax adviser before you finalize your request.