Hardship Withdrawal

AAA

DEFINITION of 'Hardship Withdrawal'

An emergency withdrawal from a retirement plan that may be subject to certain tax or account penalties. In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes.

INVESTOPEDIA EXPLAINS 'Hardship Withdrawal'

Hardship withdrawals from a retirement plan such as a 401(k) can't be replaced. The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.

The stiff penalties and criteria for hardship withdrawals are meant to deter investors from using this option except as a last resort. The ability to have money free from future income taxes and capital gains taxes (a trait of most retirement accounts) is an extremely valuable asset, and is necessary for many people to achieve a stable retirement.

RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  3. Early Withdrawal

    The removal of funds from a fixed-term investment before the ...
  4. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Foam The Runway

    A term indicating the last-minute infusion of cash into a company ...
Related Articles
  1. Retirement

    Should You Borrow From Your Retirement Plan?

    It makes sense to dip into your savings in some cases, but you must be aware of the potential consequences.
  2. Retirement

    What are the exceptions to the early distribution penalty for a non-qualified Roth IRA distribution?

    The exceptions are as follows: The distribution is made on or after the date you reach age 59.5 The distribution is made while you are disabled and you can furnish proof that you cannot do any ...
  3. Budgeting

    8 Reasons To Never Borrow From Your 401(k)

    Find out why dipping into your future savings can have serious consequences.
  4. Retirement

    Sometimes It Pays To Borrow From Your 401(k)

    401(k) loans have been demonized, but they're often the most beneficial source of cash.
  5. Retirement

    Will My Pension Impact My Social Security Benefits?

    So you're eligible for a pension, and you're eligible for social security. And the question is, will that pension impact your social security benefit?
  6. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.
  7. Retirement

    Are part-time employees eligible for fringe benefits?

    Learn how offering fringe benefits allows employers to entice new talent to join their teams, although part-time workers do not often get these benefits.
  8. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.
  9. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  10. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center