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Taking an early withdrawal from your 401(k) is not only costly in the short term, it can also jeopardize your long-term retirement goals.

If you withdraw retirement accounts before the penalty-free 401(k) withdrawal age of 59.5, you’ll be forfeiting the benefits of tax-deferred earnings and compounding interest, which diminishes the savings power of 401(k) accounts. These plans are specifically designed for long-term investing, making the years work in the contributor’s favor.

Because of the severe financial penalties, withdrawing money early from retirement accounts should be done only in an extreme emergency, ideally after any emergency funds and investments have been depleted. If you are in a financial pinch and considering taking money out of your 401(k) or any other retirement savings account, here are four times it’s OK to dip into your retirement fund early.

Certain qualifying situations allow for a penalty-free hardship withdrawal, but employers are not required to provide these kinds of 401(k) withdrawal rules. Some people have to take the hit of the penalty for withdrawing early from retirement savings just to stay financially afloat.

Emily LaRusch, founder of Back Office Betties, which offers full-time virtual receptionists, has experienced this firsthand. “In 2010, I was days away from having my second baby when I was laid off,” LaRusch said. “I made the decision to close my 401(k) and accept the penalties in order to support my family while I stayed at home for the first year with my son.”

In such extreme situations, after carefully thinking it through and running the numbers with a 401(k) withdrawal calculator, you might find it’s still in your best interest to make a 401(k) withdrawal or other type of early distribution — even if there are penalties. If you find yourself in one of the following scenarios, withdrawing money early from your retirement savings might be financially prudent.

You become totally and permanently disabled: You can take penalty-free distributions from qualified plans due to a total or permanent disability. Minor or partial disabilities don’t qualify.

According to the IRS, you are considered disabled if:

You can provide proof that you cannot do any substantial gainful activity because of your physical or mental condition.

A physician determines that your condition can be expected to result in death or to be of long, continued and indefinite duration.

Some experts recommend first applying for state disability insurance to make it easier to prove your status to the retirement plan administrator. To take a 401(k) hardship withdrawal, you must fill out IRS Form 5329 to get out of paying the penalty and ensure you are adhering to IRS 401(k) loan rules.

You’re drowning in medical debt: You can withdraw from your retirement accounts to cover unreimbursed, out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income. These expenses must be paid in the same year you take the distribution, and the distribution is not subject to penalty if withdrawn from an IRA or 401(k).

The difference between these expenses and 10 percent of your AGI is eligible for this exception. For example, if your AGI is $60,000 and your unreimbursed medical expenses are $9,000, the maximum amount you can distribute without penalty is calculated as 9,000 — (60,000 x 0.10) = $3,000.

You’re getting divorced: If you get divorced, you might be required by court to divide the funds with your former spouse or a dependent. These distributions are usually ordered under a property settlement under a qualifying domestic relations order and are exempt from an IRA or 401(k) withdrawal penalty.

You’re starting a business: Many personal finance experts will probably advise otherwise, but you might be able to use your 401(k) and IRA funds to finance a small business or startup. There are significant legal steps you will need to take, including rolling the money over into a corporate retirement account that allows you to invest in the business. It’s best to consult a financial planner or third-party retirement-plan administrator for help with this.

For some entrepreneurs, this move has been well worth the effort and extra risk. Jason Fisher is the owner and founder of Waterway Financial Group, which provides holistic financial planning. Fisher drained his 401(k) to start his small business.

“I tapped out my entire 401(k) to begin a small business,” Fisher said. “While it wasn’t a ton of money, it was crucial for my business to have as much capital up front as possible, and the hit I took in penalties and taxes was well worth it.

The way I look at it, I was able to compound my money in a business much faster than anticipated in the market, and I was correct. Obviously, the risk was greater, too.”

The bottom line: Withdrawing money early from your retirement accounts — that is, borrowing against your 401(k) or IRA — carries heavy financial consequences, but sometimes the benefit outweighs the cost of taking out a 401(k) loan.

Take this opportunity to assess your financial situation and ask yourself if the problems you’re having are only temporary — or if they’re the sign of a much larger issue. Make a new financial plan that will protect you from facing this kind of difficult and costly decision again in the future.

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