What is ‘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 In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes.
Explaining ‘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 The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.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.
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