Hardship Withdrawal


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 In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes.

BREAKING DOWN '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 The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.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.

  1. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  2. Roth IRA

    An individual retirement plan that bears many similarities to ...
  3. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. Early Withdrawal

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

    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.
  3. Budgeting

    8 Reasons To Never Borrow From Your 401(k)

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

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  5. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  6. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  7. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  8. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  9. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  10. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  1. What are the exceptions to the early distribution penalty for a non-qualified Roth ...

    The exceptions are as follows: The distribution is made on or after the date you reach age 59.5 The distribution is made ... Read Full Answer >>
  2. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  3. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  4. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  5. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  6. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center