How to Take 401k Out Without Penalty

If you’re under 59½, taking money out of your 401(k) can usually trigger a 10% early withdrawal penalty. There are a few exceptions to this rule, however. You may not have to pay a penalty if you:

– Take the money out after you turn 59½.
– Take the money out to pay for qualified education expenses.
– Take the money out to pay for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.
– Take the money out to avoid foreclosure of your home or eviction from your rental unit.
– Take the money out to pay for certain extraordinary expenses, such as funeral expenses or the cost of long-term care.

Early Distributions

* If you need to withdraw money from your 401(k) before you reach age 59½, you may have to pay a 10% early withdrawal penalty.
* However, there are some exceptions to this rule.

  • You can withdraw money from your 401(k) penalty-free if you are:
    • At least 59½ years old
    • Disabled
    • Receiving a pension from your employer
    • Taking a loan from your 401(k) (up to $50,000)

* If you are not sure whether you qualify for an exception, you should talk to a tax advisor.


401k loans are a way to borrow money from your 401k plan without having to pay taxes or penalties. The limit on how much you can borrow is usually 50% of your vested 401k balance, up to a maximum of $50,000. You typically have five years to repay the loan, and the interest you pay on the loan goes back into your 401k plan.

There are a few things to keep in mind if you’re considering taking out a 401k loan.

  • You’ll have to pay back the loan with interest, so it’s important to make sure you can afford the payments.
  • If you leave your job before you’ve paid back the loan, the outstanding balance will become taxable and you may have to pay a 10% penalty if you’re under age 59½.

Hardship Withdrawals

Hardship withdrawals are another way to access your 401k money without having to pay taxes or penalties. However, hardship withdrawals are only available if you have a financial hardship, such as:

  • Medical expenses
  • Education expenses
  • Funeral expenses
  • Down payment on a primary residence

To qualify for a hardship withdrawal, you’ll need to provide documentation to your plan administrator that shows you have a financial hardship.

The amount of money you can withdraw as a hardship withdrawal is limited to the amount of your financial hardship. You’ll also have to pay taxes on the amount you withdraw, but you won’t have to pay a 10% penalty if you’re under age 59½.

Type of WithdrawalEligibilityLimitsTax ImplicationsPenalty
LoanMost 401k plans50% of vested balance, up to $50,000Interest paid back into 401k planNo penalty if repaid within five years
Hardship WithdrawalFinancial hardship onlyLimited to amount of financial hardshipTaxes due on amount withdrawnNo penalty if under age 59½


To avoid paying taxes and penalties on your 401(k) withdrawal, consider rolling it over to another qualified retirement account, such as an IRA or a new 401(k) plan. This will allow you to continue deferring taxes on your investment earnings until you withdraw the funds in retirement.

Qualified Birth or Adoption Expenses

You may be able to avoid the 10% early withdrawal penalty if you use the funds to pay for qualified birth or adoption expenses. These expenses include:

  • Adoption fees
  • Legal fees
  • Medical expenses
  • Other expenses directly related to the adoption

To qualify, the adoption must be a legal adoption, and the child must be under 18 years old or disabled. The expenses must be incurred within one year of the adoption date.

Adoption feesUp to $5,000
Legal feesUp to $2,500
Medical expensesUp to $5,000
Other expensesUp to $2,500

Well, there you have it! Now you know how to tap into your 401(k) without incurring an IRS penalty. Remember, the earlier you plan, the better. And if you’re still unsure about anything, don’t hesitate to reach out to a financial advisor for guidance. Thanks for reading, and be sure to check back for more money-saving tips!