Reasons for Withdrawal

• There are several reasons that the IRS considers "immediate and heavy" financial needs that would permit you to withdraw money from an employer-sponsored retirement plan early. If you or your immediate family have unreimbursed medical expenses, if you are repairing or purchasing your primary residence, if you are in danger of being foreclosed or evicted, if you need to pay for college for yourself or an immediate family member or if you need to pay for a funeral, then you are eligible.
  
  

Additional Regulations

• The IRS strongly discourages hardship withdrawals, and penalizes those who elect to take them through taxation and penalty. A major benefit of retirement plans is the lower income tax rate that the account holder receives when the funds are withdrawn normally; withdrawing early permits the IRS to tax the account holder at her current rate. In addition, if the account holder is not yet 59 1/2, the IRS levies a 10 percent penalty of the amount withdrawn.
  
  

Your Employer's Rules

• Employer rules vary. A small company may not be able to afford to let employees take a hardship withdrawal. While some companies will require documentation that confirms the reason necessary for applying for the withdrawal, others may simply take the employee's word. Regardless of the situation, you will only be able to withdraw exactly the amount you need, and you must have exhausted the loan possibilities in advance. You'll also won't be able to contribute to the plans for a period of six months following the withdrawal.
  
  

Withdrawing Without a Penalty

• Certain exemptions exist for qualified individuals who need to withdraw money from an employer-sponsored retirement plan early. If you become totally disabled or are in debt because of medical expenses (restrictions apply), if you are required by a court order to give money to a spouse after a divorce, child or dependent, if you become unemployed in the year you turn 55 or later, or you have "set-up a payment schedule to withdraw money," you are exempt, according to the website 401k Help Center. Hardship withdrawals are for exactly that: a hardship. If you truly have nowhere else to turn, it's a big emergency and your employer offers it, you may be eligible.