A 401-K account is a retirement account that is structured to be used at retirement age. Any time money is taken from a retirement account for any reason other than retirement, penalties are incurred.

Heymcs is right except in the current economic situation where if you have to take money out of your 401K and you are unemployed and need the money to cover medical insurance and expenses, you do not have to pay the penalty. All else, you pay unless you take a LOAN from your 401k and your administrator files it as such and you begin paying it back right away.

A hardship withdrawal just means you'll be allowed to withdraw funds instead of taking a loan against your 401k that needs to be repaid. You don't avoid the penalties for early withdrawals.