Can a Person Draw Out His Retirement for a Hardship?

Funeral expenses can be paid with hardship withdrawals.
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Most retirement plans give workers the ability to withdraw the money they have saved if it becomes necessary to use some of it during times of financial crisis. While retirement savings should be left alone until you reach retirement age, the Internal Revenue Service recognizes that emergencies do occur, and it has established some guidelines for when money can be taken out of 401(k) and 403(b) plans due to hardship. By contrast, you can remove money from your IRA at any time.


IRS rules require that the hardship must be due to "an immediate and heavy financial need," and the withdrawal must be necessary to satisfy that need. The need of the employee, however, also includes the need of the employee's spouse and dependents. Withdrawals are limited to paying unreimbursed medical expenses, buying a primary residence, paying for higher education expenses or funeral expenses, repairing damage to a primary residence, and catching up on rent or mortgage payments to prevent either an eviction or a mortgage foreclosure. Unlike loans, money taken out of retirement accounts for hardship withdrawals is not paid back.


The money a person takes out of a retirement account for hardship purposes will be included in his gross income for the year unless the withdrawal is from a Roth account, in which case a portion of the withdrawal is tax-free. Hardship withdrawals cannot be rolled over into an IRA or other qualified retirement plan. Hardship distributions are subject to 10 percent withholding, which the worker can opt out of, but taxes will be due when he files an annual income tax return. On top of the withholding tax, there could be another 10 percent tax for early withdrawal from the retirement plan if the worker is under age 59 1/2.

Maximum Amount

The amount a worker can withdraw for hardship is usually limited to what he has contributed to the account. It usually does not include earnings or employer matching contributions or profit-sharing contributions unless the plan specifically makes those exceptions. In any case, the withdrawal cannot be more than what is needed to cover the expenses that have led to the hardship.


You can take a distribution from any IRA at any time, although there are tax consequences and possibly penalties, especially if the withdrawal occurs from a traditional IRA before you've reached age 59 1/2. You can take your contributions from a Roth IRA, however, tax- and penalty-free at any time. If you take the early distribution from your traditional IRA for certain hardship reasons, it may be exempt from the extra 10 percent tax on early withdrawals. These reasons -- funeral expenses, for example -- are similar to the "hardship" criteria that allow you to take early withdrawals from other types of retirement savings.

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