401K Withdrawal Penalty Free – When Is It Possible ?
The 401k withdrawal penalty is one that can be costly at ten percent, and this penalty is assessed if you withdraw from you account before you turn fifty nine and a half years old, with certain exceptions. The law does allow you to make a 401k hardship withdrawal in some circumstances, and this withdrawal may not be assessed the tax penalty as long as verification of the circumstances can be shown. You can make a 401k withdrawal penalty free if you become disabled, but this condition must be permanent and you must be totally disabled. This step is also possible if you receive payment from a plan that offers a series of equal payments made periodically, you have been separated from service, and the payments will last for your expected life span and are made at least yearly.
Borrowing from 401k plans is not recommended if there are other options available, because this is money you need for retirement and because you may end up owing the tax penalty in some cases. If you have deductible medical expenses then you can take advantage of a 401k withdrawal penalty free, up to the amount of the medical expenses so that these bills can be paid. There is also no tax penalty if there is a Qualified Domestic Relations Order in effect, and there may also be other situations where the 401k distribution rules allow an early withdrawal with no penalty imposed.
The 401k withdrawal penalty can significantly add to your tax bill, and it is possible to access these funds without this penalty in some cases. Before you make any withdrawal you should seek qualified 401k investment advice, to make sure that this step will not cost you a substantial amount in tax penalties. Each plan can be different in some ways, so receiving advice before taking this step can be critical. If there is a QDRO then this order must be verified and validated before the tax penalty is waived.