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Plan participant generally ends up with about 1/2 of the amount withdrawn (the reminder goes to taxes and federal early withdrawal penalties) |
Plan participant generally ends up with most of the amount withdrawn |
Withdrawn money taxed as income for the year |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 |