401k Withdrawal Without Penalty

No financial guru, government and employers ever encourage anybody to go for an early 401k withdrawal. The obvious reason being that 401k withdrawals are not something that one should experiment around very easily. 401k retirement savings is the money you put aside as your savings for a financially secured future after your retirement years. So, before you proceed for withdrawing from 401k earlier, you need to give a second thought to it. More so, because there are some strict penalties imposed on you, if you withdraw those hard-earned savings before time.

401k Withdrawal and Penalty
For your good, the government discourages early 401k withdrawal. To do so, it imposes some strict financial penalties. They're as follows.

• For various types of retirement plans including 401k, there is a 10% penalty imposed on the total amount of your savings at the time of your 401k withdrawal.
• As we all know, 401k savings are exempted from tax but now, when you're taking out your savings before fixed time, you'll entitled to pay tax on it. The money that will come out of your 401k savings will be called 'source of income'. Depending on the income bracket your withdrawn amount falls, you'll be charged tax.

Early withdrawal brings with it the added burden of 10% penalty as well as tax that can cause significant financial loss.

How to Withdraw 401k Without Penalty
Fortunately, there are some exemptions to the rules of withdrawal. If you don't have any other option but to withdraw your 401k savings, then here are some cases under which you can be exempted from the penalty.

• In cases of home eviction and foreclosure, there is no penalty.
• 401k withdrawal goes penalty free if you're permanently disabled owing to some accidents or injury.
• No penalty is charged in case, it's for divorce settlement issues and for meeting normal expenses of daily life.
• If your withdrawn funds are named to a beneficiary or your estate after your death, then you are exempted from penalty.
• According to 401k rules, if you invest the 401k savings in some other retirement planning schemes within 60 days of withdrawal, you will be charged no penalty.
• If your medical debts have exceeded 7.5% of your adjusted gross income, no penalty is charged.
• You have to pay the medical insurance money due to a 12 weeklong unemployment period.
• For first time home buyers, the penalty for early withdrawal is neglected on first $10,000 but later, penalty has to be paid for the withdrawal for later amounts.

One of the most confusing cases for getting a penalty free 401k withdrawal is, if your employer has terminated you from the job and you're not entitled any benefits from it. In this case, if you're under 59.5 years of age, you'll charged 20% mandatory withholding cut taxes and 10% penalty charge (If you don't fall in any of the exemption rules). Similarly, if you're above 59.5 years but less than 70, you'll be charged a 20% withholding tax or you can leave the amount to your employer so that you can take it whenever you need it in the future. You can also have the option to rollover the amount into an IRA account or get a solo 401k withdrawal.