Account holders can withdraw 401(k) earnings at age 55 without penalties if they retire or terminate their employment, reports About.com. They may also avoid penalty taxes if they qualify for an early distribution exception.Continue Reading
A 401(k) account holder who withdraws from service after age 55 may take regular distributions without the 10 percent penalty tax, although the distributions are still subject to normal income tax, says About.com. If the employee terminated employment before the age of 55, this exception does not apply. The complete permanent disability of the account holder allows distribution before the age of 59 1/2 without penalties, according to the IRS. Early death of the account holder enables penalty-free distribution to spouses and other beneficiaries. Other penalty-free exceptions include medical expenses that total more than 10 percent of adjusted gross income, active deployment of military reservists and payment of amounts owed to the IRS.
Another penalty-free option for those 55 over is the withdrawal of regular fixed amounts for a minimum of five years or until the account holder reaches the age of 59 1/2, whichever is longer, states CNN Money. These are known as substantially equal periodic payments, according to the IRS. Payment amounts are calculated using the account balance and the estimated lifetime of the account holder.Learn more about Financial Planning