Terms of Use
Generally yes, you will be assessed a 10% penalty if you withdraw funds from your 401(k) plan before the age of 59-1/2.
There are situations where the IRS will waive the 10% early withdrawal penalty on a 401(k):
- Medical Expenses: If your un-reimbursed medical costs exceed 10% of your adjusted gross income
- Court Mandates: If a court has ordered you to pay a former spouse, child or dependent from your 401(k)
- Substantially Equal Periodic Payments: If you take at least five substantially equal periodic payments (SEPPs), and the amount of the payments depend on your life expectancy as calculated through IRS-approved method, also known as a Section 72(t) retirement distribution
- Permanent Disability: If you become totally disabled
- Military Reserve Duty: If you are a qualified reservist and are called to active duty for 180 days or more
- Rule of 55: If you leave your job at 55 or older and the company is sponsoring your 401(k)
- Rollover to Qualified Retirement Accounts: If you rollover your 401(k) funds into another tax advantaged retirement account
Consider this: a $10,000 early withdrawal will cost you $1,000 in penalties plus you'll owe taxes if the funds were in a Traditional 401(k).
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