Questions and Answers

Are there penalties of taking an early 401(k) withdrawal?
A1
No matter your age, withdrawing from a 401(k) is taxed as ordinary income that year (unless it is a Roth 401(k)). Most likely, unless you meet specific criteria, you’ll be subject to a 10% early distribution penalty. When you combine these two factors, it might not be worth withdrawing especially if you consider the lost potential earnings over time!
A2
See if your withdrawal qualifies for a “hardship distribution”. Some plans may allow you to withdraw if you can prove immediate and necessary financial need. The amount of the distribution may be limited but could help those in serious need.
A3
There are some alternative options and exceptions to the rules. For example, if you leave or lose your job in the year you turn 55 (or later) you should look into a separation of service which wouldn’t carry a penalty.

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