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ARTICLE · 13 MARCH 2023

401(K) Plan Early Access: How To Avoid Penalties

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If you have money in a traditional employer-sponsored retirement plan, such as a 401(k) or 403(b), you are probably aware that withdrawals before age 59½ generally are not advised.

United StatesWealth Management
Jeffrey Green, CPA
Jeffrey Green, CPA
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If you have money in a traditional employer-sponsored retirement plan, such as a 401(k) or 403(b), you are probably aware that withdrawals before age 59½ generally are not advised. Early withdrawals are allowed under certain circumstances, but in most cases they are subject to a 10% penalty — on top of ordinary income taxes. However, if you need to tap 401(k) funds early, it is possible to avoid penalties (not taxes) in limited situations.

HARDSHIP WITHDRAWALS

Before you attempt to take early withdrawals from your retirement account, be sure you understand the terms of your plan. Just because the IRS allows certain types of withdrawals does not mean your plan does. Also, even if your plan allows early withdrawals under certain circumstances, that does not mean those withdrawals are penalty-free. Whether an early withdrawal is permitted and whether it is subject to the 10% penalty are two separate questions.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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