A true withdrawal gets hit both ways: before age 59 and a half you generally owe a 10% early-withdrawal penalty plus ordinary income tax on the full amount. A 401(k) holds pre-tax dollars that have never been taxed, and a hardship withdrawal for a home purchase is still a withdrawal, so it carries the same hit. The damage adds up fast. Pull a large sum and the penalty takes a chunk off the top while the entire amount stacks onto that year's taxable income, which can push you into a higher bracket. That is why we almost always steer people to the 401(k) loan instead. Under current IRS rules you can typically borrow up to 50% of your vested balance, capped at $50,000 (confirm the current limits and your plan's own rules), and pay yourself back with interest. No penalty, no tax, and the remaining balance keeps growing. It is one of the cleaner ways to fund a down payment. Proposals to allow penalty-free retirement withdrawals for homebuying surface periodically. Until one is actually law, plan around the rules as they stand. And because the tax math is specific to your situation, confirm the numbers with your tax advisor before you move any retirement money.