If you need funds from your 401(k) before age 59½ or before leaving your employer, you may qualify for a 401(k) loan or a hardship withdrawal. This article explains how each option works, what you need to qualify, and how to request one.
Important: Before drawing from your retirement savings, consider all other options first. Both loans and hardship withdrawals can permanently reduce your retirement readiness.
You typically cannot access money from your 401(k) until you reach age 59½ or leave the employer sponsoring the plan. If you need funds sooner, you may qualify for a loan or a hardship withdrawal.
A 401(k) loan lets you borrow against your vested balance and repay the amount plus interest back to your account over a set period.
A hardship withdrawal is a one-time disbursement of funds for an “immediate and heavy” financial need. You cannot repay a hardship withdrawal or roll it over to another retirement account. The Internal Revenue Service (IRS) only allows hardship withdrawals under certain circumstances.
Gusto 401(k) loan
You need to be an actively employed participant.
You cannot have an outstanding 401(k) loan.
Hardship withdrawal
You need to be an actively employed participant under the age of 59½.
You need to have a documented financial hardship.
You need to have exhausted other financial resources.
Gusto 401(k) loan
You can use a loan for any financial need.
Hardship withdrawal
Qualified reasons include:
Certain medical expenses
Principal residence purchase (excluding mortgage payments)
Tuition-related costs
Payments to prevent eviction from a primary residence
Burial or funeral expenses
Casualty deduction costs for a primary residence
Certain emergency repairs to a primary residence
Gusto 401(k) loan
Minimum: $1,000
Maximum: 50% of your vested account balance, not to exceed $50,000 (less any outstanding balance from the prior 12 months) in any 12-month period
Hardship withdrawal
Minimum: $1,000
Maximum: the amount needed to meet your documented financial need, including taxes, fees, and penalties
Gusto 401(k) loan
Loans are repaid in equal installments over no more than five years from the date of the loan — or up to 10 years if the loan is for the purchase of your primary residence.
Hardship withdrawal
Hardship withdrawals cannot be repaid or rolled over to another retirement plan or IRA. This is a permanent removal of money from your retirement savings.
Gusto 401(k) loan
The loan amount is not taxed if you repay it according to the agreed-upon terms or sooner.
If you miss scheduled payments for 60 days, or leave your company and do not repay the outstanding balance within 90 days, the loan is considered in default. The balance will be treated as a distribution, and a 1099-R will be issued.
Hardship withdrawal
Withdrawals from your pre-tax account balance are taxed as ordinary income.
Withdrawals are subject to an additional 10% early-withdrawal penalty unless you qualify for a penalty exemption.
Gusto 401(k) loan
Limited to one outstanding loan at a time.
Hardship withdrawal
Limited to two hardship withdrawals per calendar year.
Gusto 401(k) loan
If you are purchasing a primary residence and requesting a loan term over five years, you need a purchase agreement or mortgage contract.
All other loans do not require verification.
Hardship withdrawal
The hardship withdrawal application allows you to self-certify your hardship.
You need to keep a record of the hardship in the event the IRS audits you.
You can request a 401(k) loan or hardship withdrawal directly from your Gusto Retirement dashboard. For step-by-step instructions, go to: