A hardship withdrawal allows you to take money out of your employer-sponsored retirement plan, such as a 401(k), before age 59½ due to an immediate and serious financial need. The IRS defines qualifying situations narrowly: think medical expenses, preventing eviction or foreclosure, funeral costs, or certain home repairs after a disaster.

Unlike a 401(k) loan, a hardship withdrawal doesn't get paid back, which means that money is permanently out of your retirement account and loses its future growth potential. You'll owe ordinary income taxes on the amount withdrawn, and in most cases, a 10% early withdrawal penalty on top of that. It's a legitimate option when you're truly in crisis, but worth exhausting other options first.