In 401k plans, you can only withdraw from your retirement savings without any tax penalty if you have reached the age of 59 ½ years old. But there are cases that are exempted from this rule. An early withdrawal is allowed in cases like extreme financial burden.

The Internal Revenue System (IRS) might permit you to receive a hardship distribution if you have a serious financial burden and there’s no other way for you to get out of it. But the max 401k early withdrawal amount would generally be equal to your total elective deferrals as of the distribution date.

Included in the immediate and extreme financial hardships is are the medical bills you or your dependents have incurred. With the exception of mortgage payments, expenses needed for you to maintain your primary residence may also be considered for this. If you have unpaid rentals and other fees and are in danger of being evicted, your situation may be a valid reason for an early withdrawal. Expenditures for house repair may also be included.

You could also be allowed to make early withdrawals when you need funds for funeral expenses and payments for education, such as tuition fees and room and board expenses.

All your other distributions and non-taxable loans should have been used before resorting to your 401k.

Once your situation’s been deemed as valid for an early distribution, your IRS 401k hardship withdrawal cannot exceed the amount you need to solve your financial burden.

However, you wouldn’t be allowed to contribute to your 401k and all other employer-maintained plans for at least 6 months after you’ve received your hardship distribution.

Permanent disability, disaster relief and other similar hardship cases may be allowed for early withdrawals. The max 401k withdrawal in these cases would only be up to the amount you need to pay for your stated financial burden, just the same as the other circumstances mentioned earlier.

If you want to know if your circumstance may be considered for an early withdrawal, you should speak to your 401k consultant. The IRS rules on early withdrawals are strict only to ensure that your 401k savings will exclusively be used for retirement.