We’ve all been in a tight financial spot. It can be tempting to dip into that big pot of 401(k) money, just sitting there doing nothing.

If you’re considering that as an option: DON’T.

While you may get some short-term relief, the penalty for cashing out a 401(k) before age 59½ is 10% on top of your income tax. This may not seem like a lot, but $10,000 withdrawal could cost you upwards of $3,000 in taxes—money that you’ll never see again.

But if you’re in a situation where you don’t have any other options, see if you qualify for one of these exceptions to the 401(k) withdrawal penalty.

1. You take a hardship distribution.

If (and only if) your plan allows it, you can take out a hardship withdrawal for “an immediate and heavy financial need,” like the following:

• Medical bills for you, your spouse, or dependents
• Down payment on a first-time home
• College tuition, fees, and room and board for you, your spouse, or your dependents
• Funeral expenses
• Certain costs to repair damage to your home

Contact your plan’s administrator to see if this is an option.

2. You receive “substantially equal periodic payments.”

Under this plan, you agree to take a series of equal payments, at least one per year, from the account. These begin once you stop working, and have to remain the same for at least five years, or until you hit age 59½ (whichever comes last).

3. You leave your job (and are 55 or older).

If you leave your job starting at age 55, then you can take out payments without penalty. For some federal employees, this can start as early as age 50.

Other exceptions to the 401(k) early withdrawal penalty.

In addition to the reasons listed above, here are some situations that may allow you to take out 401(k) money without penalty:

• Death
• Disability
• Division of assets in a divorce
• Rollover to another plan
• Birth or adoption of a child (up to $5,000 per account)
• Payment of an IRS levy
• Victim of disaster
• Over-contribution or auto-enrollment in a 401(k) program (within certain time limits)
• Military reservist call to active duty
  

Why you should avoid 401(k) early withdrawals if at all possible.

Ultimately, you should avoid early withdrawals for the following reasons:

• Penalty-free doesn’t mean tax-free, and you’ll almost certainly pay some tax on a withdrawal
• You miss out on potential growth by reducing the size of the fund; once you take the money out, you can’t put it back in
• Not all employers provide a hardship distribution, which limits your penalty-free withdrawal options

Rather than dip into your retirement fund, consider applying to Matchly to help cover those expenses. Use the calculator below to calculate how much you qualify for.