- Hardship distributions allow employees who contribute to retirement plans to make payments on burdensome financial obligations.
- The types of financial obligations typically considered "immediate and heavy" include financing a primary residence, medical expenses, higher education costs or necessary home repairs.
- An employee may not qualify for a hardship distribution of 401(k) or other retirement plan funds if payment can be made through other reasonable means, such as insurance payments, liquidation of assets or loans.
- IRA plans have different rules than 401(k) or 457(b) plans. A hardship is not required to receive early distributions from an IRA, but hardship distributions from IRA may not be subject to the early distribution tax.
- After a hardship distribution, an employee may not make contributions to their plan for six months. The money received in a hardship distribution is considered income, and may significantly affect the employee's taxes, as well as eligibility for financial aid for higher education.