Hardship Withdrawal

Dictionary Says

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 In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes.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

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 The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.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

  • 401(k) Plan

    A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a ...
    Read More »
  • Traditional IRA

    An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or ...
    Read More »
  • Roth IRA

    An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other ...
    Read More »
    • Early Withdrawal

      The removal of funds from a fixed-term investment before the maturity date, or the removal of funds from a tax-deferred investment account or retirement savings account, such as an IRA ...
      Read More »
    • Required Minimum Distribution - RMD

      The amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age ...
      Read More »
    • Foam The Runway

      A term indicating the last-minute infusion of cash into a company about to go bankrupt. Airports foam runways prior to an imminent crash landing to help reduce friction and sparks. Just ...
      Read More »

Articles Of Interest

Partner Links