A hardship withdrawal is when a 401(k) account holder removes funds from her retirement savings because of circumstances like job loss, facing home foreclosure, or overwhelming medical expenses. While withdrawal is permitted during those tough times, the account holder cannot get away from the 10 percent tax penalty incurred when the funds are removed.
According to The Wall Street Journal, several 401(k) plan administrators reported a noticeable increase in hardship withdrawals this year compared to last. The shift signals that many 401(k) participants are more concerned about how they will pay their bills than saving for retirement. Administrators have also observed many employees dealing with the tough economy by reducing the amount they contribute to their retirement plans.