401(k) Early Withdrawal Penalty Rules Explained

Key Detail Summary Standard Penalty 10% penalty before age 59½ Taxes Withdrawals taxed as ordinary income IRS Withholding 20% automatically withheld Exceptions Rule of 55, disability, medical expenses, SEPP 72(t) Alternatives 401(k) loan, Roth IRA contributions, 60-day rollover Cost Example $20K withdrawal = $14K after taxes and penalties Exception How It Works Rule of 55 Leave your job at 55+ and withdraw penalty-free from that employer’s plan Disability or Death Permanent disability or inherited 401(k) distributions are exempt Medical Costs Withdraw amounts over 7.5% of AGI penalty-free QDROs (Divorce/Abuse) Up to $10K or 50% of the account can be withdrawn penalty-free SEPP 72(t) Equal payments for ≥5 years or until age 59½ IRS Levy/Military No penalty for withdrawals under levy or…