What to consider when withdrawing funds from retirement accounts

CHICAGO (WLS) -- Monday morning, we kicked off our new series, "Money Saving Mondays."

Each week for the next month, we'll bring you features designed to help you do everything from cutting credit card debt to making and keeping a household budget.

Some Americans choose to dip into their retirement account when faced with financial hardship. Here's what you need to know when considering it.

There are broadly two types of tax-advantaged retirement accounts available to American workers.

"An IRA is available to any working American with earned income," James Royal with Bankrate said. "The other type of account is an employer sponsored account, and your employer has to offer it for you to be able to access it. And that's a 401k."

Bankrate analyst James Royal said that for both IRA and 401k accounts, when you withdraw money earlier than age 59-and-a-half, the U.S. government imposes a 10% penalty.

"There are a number of hardships that allow you to take money out of an IRA and avoid the 10% bonus penalty," Royal said. "Being flat broke, however, unfortunately, is not one of them."

Qualifying hardships differ based on the type of retirement account you have. But you may be able to make a penalty-free withdrawal.

For medical bills, if you are permanently disabled or have a terminal illness, if you're a victim of domestic abuse, after a natural disaster, for your first home purchase, for higher education expenses, for debts owed to the IRS and for payments to the other spouse as part of a divorce.

But even if you can avoid the 10% penalty, Royal said you can't avoid the taxes and he suggests only tapping into your retirement account if it's a last resort.

"So you take that money out today and that might be a relatively modest sum of money, but you're losing the compounding over time that it could become," Royal said. "So if you took out $5,000 today, if you had that in 20 or 30 or 40 years of compounding, that could easily be 40 or 50,000 dollars for your future self that you're taking out to pay for an expense today."

Royal said there are some other options you can consider, like taking a loan from your 401k account or a bank or credit union, taking advantage of promotional credit card offers, and trying to get help from family and friends.