How Many Times Can You Take a Hardship Withdrawal From 401k?

A 401(k) hardship withdrawal allows individuals to access retirement funds before traditional retirement age for an “immediate and heavy financial need,” as defined by the IRS. This option serves as a last resort for unforeseen financial emergencies, not a routine way to access funds. Plans are not required to offer hardship withdrawals, so availability depends on the specific plan.

Understanding Hardship Withdrawals

To qualify, a withdrawal must address an immediate and heavy financial need that cannot reasonably be met by other readily available resources. The IRS outlines specific “safe harbor” events that are generally considered to meet this criterion. The amount withdrawn must not exceed what is necessary to satisfy the financial need.

• Expenses for medical care for the employee, spouse, or dependents.
• Costs directly related to the purchase of a principal residence, excluding mortgage payments.
• Payments to prevent eviction from or foreclosure on a principal residence.
• Tuition, related educational fees, and room and board for the next 12 months of post-secondary education for the employee, spouse, or dependents.
• Funeral or burial expenses for a parent, spouse, children, or dependents.
• Expenses for the repair of damage to a principal residence that would qualify as a casualty loss under federal tax law.

Frequency and Conditions

There is no fixed limit on how many hardship withdrawals an individual can take from a 401(k) plan. However, each withdrawal must stem from a new, distinct, and qualifying hardship event. This means it is not a revolving line of credit or a general emergency fund. Each instance requires demonstrating an immediate and heavy financial need that cannot be met by other reasonably available resources. The amount of each withdrawal is limited to what is necessary to satisfy the specific financial need, including any amounts required to cover taxes or penalties from the distribution.

Eligibility and Required Information

Applicants must demonstrate the financial need cannot be met through other resources. This often involves certifying the employee lacks sufficient cash or other liquid assets to cover the expense. Plan administrators may require evidence that other avenues, such as insurance, asset liquidation, or reasonable borrowing, are not available or sufficient.

To substantiate a hardship claim, plan administrators typically require specific documentation. This can include invoices for medical bills, eviction notices, home purchase agreements, or repair estimates. Some plans allow for self-certification, where the employee certifies in writing they meet the criteria, but the employee is responsible for retaining supporting documents for an IRS audit.

Applying for a Hardship Withdrawal

The application process typically begins by contacting the plan administrator or human resources department. They will provide the necessary forms and outline submission procedures. Individuals must submit completed forms with all required supporting documentation to substantiate their claim.

After submission, the plan administrator reviews the request to determine if it meets the plan’s and IRS’s criteria. Processing times vary, from a few days to several weeks, depending on the plan and its administrator. Applicants can expect notification of approval or denial, and potentially follow-up questions if more information is needed.

Tax Treatment

Hardship withdrawals from a 401(k) are generally considered taxable income in the year they are received. The withdrawn amount will be added to the individual’s gross income and taxed at their ordinary income tax rate. This applies to both contributions and any earnings withdrawn from the account.

In addition to income tax, withdrawals made before age 59½ are typically subject to an additional 10% early withdrawal penalty. However, certain exceptions to this penalty may apply, such as unreimbursed medical expenses exceeding a certain percentage of adjusted gross income, permanent and total disability, or separation from service at age 55 or older from the employer’s plan. The withdrawal will be reported to the IRS on Form 1099-R.