In order to qualify for a 401(k) withdrawal, the drawer must be at least 59 1/2 years old to avoid a 10 percent tax penalty, according to Bank on Yourself. The tax penalty may be waived under certain circumstances, says About.com.Continue Reading
Every 401(k) withdrawal is taxed as regular income, as stated by About.com. The tax penalty is enforced if the drawer does not meet the requirements for tax-free early withdrawals. To avoid the tax penalty, the individual must become disabled, terminate her employment at or above the age of 55, withdraw a medical deduction lower than the maximum or make court-ordered alimony or child support payments.
Individuals under the age of 59 1/2 can take out a hardship withdrawal to cover outstanding debt that occurred as the result of an unavoidable circumstance, such as medical expenses or an eviction, claims Bank on Yourself. Hardship withdrawals are handled by employers and typically require substantial proof of debt.
401(k) plan holders must begin taking out withdrawals, called required minimum distributions, at 70 1/2 years of age, says Bank on Yourself. If a required minimum distribution withdrawal is missed, a penalty is enforced. 401(k) plan holders aged 59 1/2 and older can take out one lump-sum or quarterly withdrawals. Lump-sum withdrawals may face higher income tax withholdings than quarterly withdrawals.Learn more about Financial Planning