Distributions - Generally Answers

Can I withdraw money from my 401(k) any time?

Generally no. If you're younger than 59 ½, you'll have a hard time. You can't withdraw from the plan unless you quit or lose your job, become totally disabled, or take a hardship withdrawal. If you do take a distribution, you will have to pay taxes and possibly a 10% penalty. If you're serious about tapping into your retirement funds, think about borrowing from your 401(k) first before you withdraw. If fact, some plans require that you borrow first, unless borrowing would cause further hardship.

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If I withdraw money before age 59 ½ from my 401(k), will I have to pay a penalty?

Yes, assuming you qualify for a withdrawal. See,"Can I withdraw money from my 401(k) anytime?" The price: the plan sponsor will set aside 20% as a prepayment of your federal taxes and you'll also have to pay the 10% early withdrawal penalty, with some exceptions.

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How can I withdraw money before age 59 ½ from my 401(k) and avoid the 10% penalty?

Depending on your 401(k) plan's specific rules, these are the only exceptions:

• If you leave your company and you're at least 55
• If you leave your job and set up a payment schedule to withdraw money in "substantially equal payments" made over the course of your life expectancy
• You're required by law to give the money to your divorced spouse, a child, or dependent
• You become disabled (the IRS decides if you qualify)
• You die and your beneficiary receives the money
• Excess 401(k) money is returned to you because you contributed more than the IRS limit to your account
• You're in debt for medical expenses that exceed 7.5% of your adjusted gross income.
  

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