If you withdraw money from a 401(k) or an IRA before age 59 1/2, the distribution is taxable and there is a 10% penalty on the taxable amount. The main exceptions that let you withdraw money early without penalty are as follows:

  • Qualified retirement plan distributions if you separated from service in or after the year you reach age 55 (does not apply to IRAs).
  • Distributions made as a part of a series of substantially equal periodic payments (made at least annually) for your life or the joint lives of you and your designated beneficiary.
  • Distributions due to total and permanent disability.
  • Distributions due to death (does not apply to modified endowment contracts).
  • Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical expenses during the year minus (2) 7.5% of your adjusted gross income for the year.
  • IRA distributions made to unemployed individuals for health insurance premiums.
  • IRA distributions made for higher education expenses.
  • IRA distributions made for the purchase of a first home (up to $10,000).
  • Distributions due to an IRS levy on the qualified retirement plan.
  • Qualified distributions to reservists while serving on active duty for at least 180 days.