People regularly ask variations of the same question, “Is withdrawing money from my 401k possible?”

They may be facing an unforeseen crisis or what they believe to be a too-good-to-miss opportunity.  Regardless of the reason, they’re tempted to tap that tax-deferred retirement account long before they turn 59.5 years old.

Assuming you’re with the employer who’s set up the account and don’t plan on leaving your job soon, your options with respect to withdrawing funds from your 401k may be limited.

Before we dig into the details, you should realize that this a general perspective on the issue.  If you want a flawless answer to “Is withdrawing money from my 401k possible?”, you’ll want to consult with your specific plan’s rules and administrator.

Okay, now that we have the caveat out of the way, let’s talk about the two ways you can get your hands on your 401k money.  The first is via a hardship withdrawal..  You see, 401k’s are wholly intended to serve as retirement accounts, but there are often provisions to allow access to funds in case of dire emergency.  If you’re in a real pinch, you may be able to get money out of your 401k that way.

However, it isn’t like stopping by the HR office and getting an envelope filled with cash.  You generally need to substantiate the need (which must comport with the hardship standards of the plan) and can only take out the money necessary to cover the need.

That decision has some massive negative repercussions, too.  As SmartMoney explains:

If you really want to do serious damage to your retirement goals, consider taking a hardship withdrawal. You’ll have to pay income taxes (which run as high as 35%) on the money as well as a 10% federal penalty for early withdrawal.

Also, plans prohibit you from contributing to your account for six months after you make a hardship withdrawal, which may deprive you of receiving company matching funds. All told, withdrawing early with no good reason to do so is about as financially self-destructive as it gets.

Obviously, cashing out via a hardship claim isn’t a pretty solution.

There is another way to get money from your 401k.  You can borrow it.

Usually, you’ll be restricted to borrowing less than $50,000 from your account and no more than half of your  401k’s total value.  Even though the law allows for these loans, it still keeps the account’s status as a retirement funding vehicle at the forefront.

AXA Equitable describes what happens when you loan yourself money from your 401k:

Typically, you have to repay money you’ve borrowed from your 401(k) within five years by making regular payments of principal and interest at least quarterly, often through payroll deduction. However, if you use the funds to purchase a primary residence, you may have a much longer period of time to repay the loan.

Make sure you follow to the letter the repayment requirements for your loan. If you don’t repay the loan as required, the money you borrowed will be considered a taxable distribution. If you’re under age 59½, you’ll owe a 10 percent federal penalty tax, as well as regular income tax on the outstanding loan balance (other than the portion that represents any after-tax or Roth contributions you’ve made to the plan).

Obviously, if you need to choose between taking out a hardship withdrawal against the balance of your 401k and borrowing against it, the loan is the better option.  Taking out the loan isn’t without its downside and if you’re in a real bind, you need to seriously consider your ability to repay the loan to avoid fees and taxation.

Depending on your specific circumstances and plan, you may have other options.  For most people who are still with the employer who administers their 401k, hardship withdrawals and loans are the two ways to tap the account.