A 401(k) loan and a hardship withdrawal both pull cash from the same account, but one must be repaid with no tax hit, while the other is never repaid but loses a real chunk to tax and, often, an early-withdrawal penalty.
How it works
A hardship withdrawal’s net cash equals the amount minus tax at your marginal rate minus a 10% penalty if you’re under 59½. A 401(k) loan delivers the full amount with no tax or penalty, since it’s borrowed from your own account.
What this does not include
This does not include the opportunity cost of money removed from the market during either option, or the fact that an unpaid 401(k) loan balance becomes taxable (and possibly penalized) if you leave your employer before repaying it.
How to use this calculator
- Enter the amount needed, your marginal tax rate, and whether you’re under age 59½.
Frequently asked questions
Why would anyone choose a hardship withdrawal over a loan?
Not everyone qualifies for a loan of sufficient size, and some plans limit loan amounts or availability, or the borrower may not intend to remain employed there long enough to repay it comfortably.
Is a 401(k) loan really risk-free?
No — if you leave your job with an outstanding balance, the remaining loan is typically treated as a taxable distribution (with a penalty if under 59½) unless repaid quickly.
Do all hardship withdrawals face the 10% penalty?
No — several exceptions exist (certain medical expenses, disability, and others) that waive the early-withdrawal penalty even under 59½, though ordinary income tax generally still applies.
