Some 401(k) plans allow withdrawals for financial hardships, including buying a house, paying medical bills, taking care of college expenses, and stopping eviction or the foreclosure of your home. However, if you take money out before reaching age 59 1/2, you'll pay a 10 percent early withdrawal penalty and ordinary income taxes. The Internal Revenue Service does waive the penalty if you're totally and permanently disabled, have excessive unreimbursed medical expenses, or a court orders you to pay support to your spouse, children or other dependents.

Facing Financial Hardships

Contact your plan administrator or read your Summary Plan Description to find out whether your plan allows hardship withdrawals. Not every plan will. If your plan does, the administrator will withhold 20 percent of the withdrawal for taxes, and you may have to pay the additional 10 percent penalty for early withdrawal at the end of the tax year if you don't qualify for a waiver. If you are facing bankruptcy, you should think twice before making a withdrawal. Your money is protected from creditors if you keep it in the 401(k). If you pull it out, you lose that protection.

Home and Education

You can use hardship withdrawals to buy a home or repair it, but it must be your primary residence. You can also use the money to prevent an eviction or avoid a foreclosure, but again, only on your primary residence. The withdrawal can also cover education expenses, including tuition, room, board and fees, but only during the following year. Also, the funds can only go toward education expenses for you, your spouse, your children or other dependents.

Medical Hardships

The hardship withdrawals can also cover medical expenses. If your unreimbursed medical costs exceed 7.5 percent of your adjusted gross income, you don't have to pay the 10 percent early withdrawal penalty. Your AGI is your total income subject to taxes, minus certain qualified deductions, including individual retirement account contributions and student loan interest. If you earned $25,000 a year, put $1,000 in an IRA and have $1,000 of deductible student loan interest, your AGI is $23,000. Other miscellaneous financial hardships may get approved on a case-by-case basis.

Hardship Withdrawal Process

Employers use two methods for extending hardship withdrawals. The most stringent involves a "proof of need," which means you have to provide hard evidence of your financial need. However, you can begin 401(k) contributions with the next check following the withdrawal. The other method, known as self-certification, doesn't force you to expose your finances to the scrutiny of your company, but you'll have to wait six months to restart your 401(k) contributions. Contact your plan administrator to find out the method used by your 401(k).