Withdrawals and 401k loans

401k Hardship Withdrawal 401k Loan
Does NOT have to be paid back Must be paid back within the agreed-upon time (within six months if the participant leaves the company)
No interest Bears interest (market rate, or thereabout)
Substantial federal early withdrawal penalties No federal early withdrawal penalties, unless the loan goes into default
Six month suspension of 401k participation upon taking out a hardship withdrawal No participation suspension
Substantial long-term negative effect on the compounding growth of the 401k account Less substantial long-term effect on the compounding growth of the 401k account — but still a significant negative effect
Sometimes asset liquidation fees (assessed by investment house) (same)
Plan participant generally ends up with about 1/2 of the amount withdrawn (the reminder goes to taxes and federal early withdrawal penalties) Plan participant generally ends up with most of the amount withdrawn
Withdrawn money taxed as income for the year No tax consequences (unless participant defaults on loan)
Must be included in all 401k plans Does NOT have to be included in 401k plans
Generally involve nominal administrative processing costs (same)
All other resources must have been exhausted for person to qualify Qualifications less stringent

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