So, let's say you've got a nice 401(k) savings. What happens if you need to withdraw that money?

Early distributions are those that are received before age 59 ½. To discourage them, early distributions are subject to normal income tax plus a penalty of 10% additional tax unless one of the following occurs:

1. You die or become disabled

2. Your employment ends and you roll over the money directly to another qualified retirement plan

3. The plan ends for any reason including an IRS levy and no other plan is established or continued in its place

4. You need to pay for medical care up to the amount allowable as a medical expense deduction

5. The distributions are part of a series of substantially equal periodic payments over your life expectancy after you no longer work for the employer

Without one of these five conditions prior to reaching age 59 ½, the only way to withdraw money from your 401(k) without having to pay it back is to qualify for a Hardship Distribution.

So what qualifies as a financial hardship under the IRS's rules? First of all, individual plans can vary greatly from employer to employer.

If you own a business or manage a retirement account for employees, you need to become familiar with your plan. Many companies may have a 401(k) plan without really understanding all the details.

So if you think you might qualify for a Hardship Distribution from your 401(k), ask your employer if the plan allows for these distributions at all.

Employers must adhere to the strict guidelines of their plan documents and can not make loans or Hardship Distributions if the plan doesn't allow for them.

If your employer doesn't know the answer or seems unwilling to research this for you, ask them for a copy of the plan. All participants are entitled to receive the plan document in writing.

If your 401(k) plan does provide for Hardship Distributions, here are the requirements:

(1) the withdrawal must be due to an immediate and heavy financial need; (2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need); (3) the withdrawal must not exceed the amount needed by you; (4) you must have first obtained all distribution or nontaxable loans available under the 401(k) plan; and (5) you can't contribute to the 401(k) plan for six months following the withdrawal.

The amount you can withdraw is usually limited to the amount of your elective deferrals only. This would not include any income earned on the deferred amounts or money matched by the employer.

The following items are considered by the IRS as acceptable reasons for a Hardship Distribution:

1. Medical expenses for you, your spouse, or dependents

2. Purchase of a primary residence or repair of a primary residence

3. College tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents

4. Payments necessary to prevent eviction from your home, or foreclosure on the mortgage of your principal residence.

5. Funeral or burial expenses for immediate family members.

You do not have to pay the withdrawal amount back to the 401(k) account. However, as I mentioned previously, you can't contribute to the 401(k) plan for six months following the withdrawal.

So when investing in a retirement account don't think of it as a regular savings account. You won't be able to get that money back into your hands before age 59 ½ without a significant penalty or hardship that you can prove.