How to withdraw 401k money with no penalty

Avoiding penalties on early 401K withdrawals

Your company-matched 401K is a critical tool in building your financial house. For many people, reaching out and using these funds is an archane magic. Handled properly, you can access 401K funds when you need them, without incurring a penalty.


Step 1

Determine your qualification for early 401K withdrawal

First, check to see if you meet the qualifications for 401K withdrawal without a penalty. Under normal conditions, this is only true if you have reached the age of 59 1/2 years and you are younger than 70 1/2 years.

However, if you can prove that you are permanently disabled, have medical bills exceeding 7.5% of your adjusted gross income, have been ordered by a divorce court to split your 401K with your former spouse, if you cease working due to layoff, early retirement, or resignation and start equal monthly payments early on a schedule based on average life span, then you can avoid the 10% penalty imposed by the IRS for early withdrawal.

Step 2

Contact your plan administrator

In many cases, even if you meet the special requirements set up by the federal government for early 401K withdrawal without a penalty, your plan rules may not allow it. Knowing your plan can help ensure you can access your money when you need it.

Step 3

If you cannot withdraw without a penalty, consider taking a loan.

For people not at great risk of leaving a company or being downsized, a 401K loan may be the better choice than a withdrawal. This will allow you to access your money without meeting the special qualifications in step 1.

Step 4

Check your address accuracy

Nothing is worse than waiting for a check that does not arrive. Whether you take your disbursement by check or through electronic deposit, ensure you verify the mailing or routing information before finalizing your request.

Things Needed
• Plan contact information
• Last plan statement
• Supporting documents for hardship withdrawals
• Proof of Age for withdrawals after 59 1/2

Tips & Warnings
• The IRS is very alert to early withdrawals, requiring the penalty to be withheld.
• Your plan may not allow hardship withdrawals.
• If hardship withdrawals are not an option, a 401K loan may be.


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