• Withdrawing funds from a retirement account early can impact your tax returntax forms image by Chad McDermott from Fotolia.com
  
  Some retirement plans may allow for hardship withdrawals. According to the IRS, plans are not required to offer hardship withdrawal options. Those that do, have the right to choose what they define as a hardship. Many plans, however, offer hardship withdrawals for events such as medical bills, death of a family member, tuition expenses for a dependent and the purchase of a home. Withdrawals of any kind are subject to applicable tax laws.
  
  

Retirement Hardship Withdrawals-401k Plans

• The amount of the hardship withdrawal cannot exceed the amount of the individual's personal contribution to their 401k. The employee can't participate in their 401k program or receive matching contributions for an entire year after withdrawal. Any loans taken out of an individual's account will reduce the amount available to withdrawal.
  
  Hardship withdrawals can be included in that year's gross income, which could increase the tax amount you owe. Early withdrawal tax penalties may also be applied as the income deferred is pre-tax.
  
  The IRS explains that United States law prohibits the rollover of any hardship withdrawal into another type of retirement account or IRA.
  
  

Retirement Hardship Withdrawals-457b Plans

• The IRS explains that these withdrawals can only occur as a result of "an unforeseeable emergency" that can include illness, injury, accidents, casualties and externally influenced events that impact the beneficiary or participant.
  
  If there is anyway that there is a possibility for the "emergency" to be paid through another means, such as medical insurance coverage of the bills you are claiming, no money can be withdrawn.
  
  Unforeseeable emergencies are loosely defined, but can include funerals and related costs, imminent foreclosure or eviction from your home and medical expenses.
  
  The amount of the withdrawal allowable by law is the amount of the emergency's expense.
  
  

Retirement Plan Hardship Withdrawals-IRAs

• You are technically able to withdrawal from your IRA account at anytime. You will face an "early distribution tax" of 10 percent, as well as whatever taxes are assessed on the taxable portion of the withdrawal.
  
  CNNMoney.com editor Walter Updegrave explains that "you can withdraw funds penalty-free from an IRA if you're disabled, you lose your job and need the money for health insurance, or if you use the funds to pay un-reimbursed medical expenses greater than 7.5 percent of your adjusted gross income. Distributions for qualified education expenses are also exempt from the penalty."
  
  Typically, IRA first-time homeowners can take out up to $10,000 to purchase a home.
  
  

Other Options When Faced With Hardship

• Many retirement plans provide loan options for individuals faced with financial difficulties or difficult circumstances. The IRS stipulates that the amount borrowed is limited to "the greater of $10,000 or 50 percent of your vested account balance, or $50,000, whichever is less."
  
  The loans do not require a financial hardship, but do not take a loan out against your retirement lightly. Failure to repay your loan on time can result in the loan being viewed as a taxable distribution and subject to penalties from the IRS.
  
  Typically only one loan may be out on a time on a given plan, and the repayment plan cannot exceed five years in length.
  
  All IRA types (SEP, ROTH, SARSEPS and Simple IRAs) are ineligible for loans.