It is essential to understand the 401k early withdrawals penalties. Investing in a 401k is beneficial for retirement but there are penalties associated for early distributions or withdrawals. There is a 10% penalty for withdrawing money from a 401k before reaching 59 1/2 years. However, there is an exception to avoid the 10% tax penalty. There are five known exceptions for early withdrawals from
. a 401k plan. The exceptions are based on the death of the participant, being 55 or over and retired or resigned from the job, received a distribution for "substantially equal payments" over a lifetime, paid for medical expenses exceeding 7.5%, disability and the distributions were required based on a divorce decree. Withdrawing from a 401k plan means a sacrifice of important benefits. Early withdrawal means that the tax benefits that an individual would normally receive, would be forfeited. Tax benefits are received on all contributions made into a 401k plan.
