A hardship withdrawal lets you access your 401(k) savings during times of severe financial need. While it can provide relief in difficult situations, it permanently reduces your retirement savings and comes with tax consequences.
This is different from a 401(k) loan. You cannot repay a hardship withdrawal, and the money you take out is removed from your retirement account forever.
When you take a hardship withdrawal, you're permanently removing money from your 401(k).
Here are important factors to consider:
You'll owe taxes: The withdrawal counts as taxable income for the year.
You may pay a penalty: An additional 10% early withdrawal penalty applies unless you qualify for an exemption.
You cannot repay it: Unlike a loan, withdrawn funds cannot be put back into your account.
You cannot roll it over: The money is not eligible to move to another retirement plan or IRA.
Eligibility requirements
You must meet all of these criteria:
Currently employed by the company sponsoring the plan
Under age 59½
Have at least $1,000 in your vested account balance
Have an immediate and heavy financial need that can't be met by other reasonably available assets (like savings or liquid investments)
Approved financial hardships
The IRS allows hardship withdrawals for these specific situations:
Medical care expenses (as defined in IRS Section 213(d)) for you, your spouse, your primary beneficiary, or your dependents
Costs related to purchasing your primary residence (excluding mortgage payments)
Tuition, fees, and room and board for the next 12 months of post-secondary education for you, your spouse, your primary beneficiary, or your dependents
Payments needed to prevent eviction from or foreclosure on your primary residence
Burial or funeral expenses for your deceased parent, spouse, children, primary beneficiary, or dependents
Repair costs for damage to your primary residence that qualifies for a casualty deduction
Expenses related to losses from a federally declared emergency at your primary residence or place of work
Note: You can only take two hardship withdrawals per calendar year.
Because the total depends on your vested balance, you can request up to 94% of your vested account to account for processing differences.
Minimum: $1,000
Maximum: The amount needed to cover your financial need, plus taxes and fees
Hardship withdrawals are subject to income tax and, in most cases, an early withdrawal penalty.
What you’ll pay
Income tax: The full amount withdrawn from pre-tax contributions is added to your taxable income for the year
10% penalty: Applied to the entire withdrawal unless you qualify for a penalty exemption
Federal tax withholding
Unlike other 401(k) distributions, you choose how much federal tax to withhold from your hardship withdrawal (since it's not eligible for rollover).
Consult a tax advisor to determine the right withholding amount. Withholding too little could result in underpayment penalties when you file taxes.
To request a hardship withdrawal, choose the path that matches how you signed in, then follow the steps.
Sign in to Gusto and go to Benefits > Active Benefits > 401(k) > Manage.
Go to the Move money tab and select Take money out.
Under See my options, select Withdraw or borrow.
Enter the reason for your hardship withdrawal request.
Input the amount you want to withdraw, then select Calculate.
Review your available withdrawal options. If you’re eligible for a hardship withdrawal, select it. If you’re not eligible, the option appears grayed out with an explanation.
Read the important terms and details, then follow the guided application process.
Sign in directly at the Gusto Retirement sign-in page.
Select Money movement in the main navigation.
Under the menu, select Move money out.
Select Withdraw or borrow.
Enter the reason for your hardship withdrawal request.
Input the amount you want to withdraw, then select Calculate.
Review your available withdrawal options. If you’re eligible for a hardship withdrawal, select it. If you’re not eligible, the option appears grayed out with an explanation.
Read the important terms and details, then follow the guided application process.
Bank account requirements
For security, ACH deposits can only be made to bank accounts in your legal name (matching the name on your Gusto Retirement account). If your bank account name differs, you can reapply with a different account or request a check instead.
Track your request
View status updates on the Activity page under Move money
Receive email notifications when your application is approved and when funds are sent
You don't need to submit documentation with your application. You'll certify that you meet all hardship withdrawal requirements.
Be sure to keep all supporting documents (bills, invoices, legal notices) in case of an IRS audit. You're responsible for proving you qualified for the hardship if audited.
Review time: Typically within 1 business day; may take 5-7 business days if additional review is needed
Check delivery: 7-10 business days via USPS
Direct deposit/ACH: 2-3 business days to settle in your bank account
You'll receive email notifications when you're approved and when your funds are on the way.
If you don't meet hardship withdrawal requirements, you may qualify for a 401(k) loan instead. Learn about 401(k) loan eligibility.
With a loan, you repay the money back to your account with interest, so it doesn't permanently reduce your retirement savings. Learn more about the differences between a hardship withdrawal and 401(k) loan.