The Lesser-Known Way to Tap Your 401(k) Before 59 1/2 Penalty-Free

Many savers learn the hard way that using a 401(k) to build a retirement nest egg can have a major drawback -- early withdrawal penalties. Generally speaking, withdrawals from a 401(k) are penalized 10% when taken before age 59 1/2. But thanks to a lesser-known rule, you may be able to take a penalty-free 401(k) withdrawal at a slightly younger age. How the rule of 55 worksThe rule of 55 allows 401(k) savers to take penalty-free withdrawals under certain circumstances. If you're able to cut expenses and tap your emergency savings while looking for work, that may be a better option than withdrawing from your 401(k) penalty-free using the rule of 55.