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 In the United States, funds withdrawn prior to the age of 59.5 are typically subject to a 10% Internal Revenue Service (IRS) early withdrawal penalty, as well as standard income taxes.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 The money that is withdrawn is permanently removed from the account, and only scheduled future contributions are permitted.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.
Further Reading
- Linking economic hardship to marital quality and instability – www.jstor.org [PDF]
- Financial hardship and well-being: a cross-national comparison among the European self-employed – www.tandfonline.com [PDF]
- Housing assets as a potential solution for financial hardship: Households' mental accounts of housing wealth in three European countries – www.tandfonline.com [PDF]
- Unemployment, financial hardship, and savings in individual development accounts – www.tandfonline.com [PDF]
- Americans' financial capability – www.nber.org [PDF]
- Financial and Educational Hardships Experienced by BSW and MSW Students During Their Programs of Study – www.tandfonline.com [PDF]
- Financial Knowledge Overconfidence and Early Withdrawals from Retirement Accounts – papers.ssrn.com [PDF]
- Private pensions and policy responses to the financial and economic crisis – www.oecd-ilibrary.org [PDF]
