A person may be eligible for a penalty-free 401k withdrawal for total disability, debt from medical expenses over 7.5 percent of adjusted-gross income, court-ordered payments, or being laid-off, quitting or retiring early at age 55 or older, states 401khelpcenter.com. The actual hardship withdrawals available depend on the employer's regulations.
Other hardships may also qualify for early withdrawal from a 401k, but they usually include a 10 percent penalty if a person is younger than 59 and a half, according to 401khelpcenter.com. One such hardship is medical expenses not paid by an insurance company for the employee, spouse or children. Money can also be withdrawn to buy or repair a primary residence or to make payments to prevent a foreclosure on this house. In some cases, early withdrawal may be available for college tuition and expenses, and funeral costs.
Employers use two different procedures for issuing hardship withdrawals. One method is requiring the employee to show proof of need by providing financial documentation. In this case, the employee can begin contributing to the 401k again starting with the next pay check. The other method is self-certification, where the employee doesn't have to prove financial need. However, the employee can't contribute to the 401k again until six months after the withdrawal, 401khelpcenter.com reports.