Your 401(k) plan is intended to be a long-term investment plan, but many companies allow employees to access their money during their working years through plan loans or "hardship withdrawals." However, you may still have to pay the 10% early withdrawal penalty.

The IRS defines "financial hardship" as the need to withdraw money A) to pay college tuition for yourself or a dependent, provided it's due within the next 12 months; B) to make a down payment on a primary residence; C) to pay unreimbursed medical expenses for you or your dependents; or D) to prevent foreclosure or eviction from your home. While distributions are generally allowed for those reasons, you may still have to pay the 10% premature distribution penalty unless you can prove you are in truly dire straits. All applicable federal, state and local income taxes are also due on the amount you withdraw.

With plan loans, however, there are no taxes or penalties owed. Although legally, loans can be allowed for any reason, many plans permit them only in specific, approved situations such as paying college tuition or buying a house. Repayments of loan principal and interest are deducted directly from your paycheck and deposited in your 401(k) account.