How do you get early withdrawal penalties waived for a 401(k)?


Quick Answer

Account holders can get early withdrawal penalties waived for a 401(k) by taking out a loan on the account or arranging for fixed payments for at least five years, reports CNN Money. Although hardship withdrawals do not qualify for a penalty waiver, some exceptions apply, states the IRS.

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Full Answer

Most 401(k) plans allow account holders to obtain a loan against half the value of the account for any financial reason, according to CNN Money. The borrower must pay back the loan from paycheck deductions with interest. Account holders of a 401(k) can also opt for a plan of substantially equal periodic payments, says Bankrate. The payments must last for at least five years or longer until the account holder reaches a minimum of age 59 1/2.

Immediate and heavy financial needs allow account holders to make hardship withdrawals, explains the IRS. Situations that qualify for a waiver of the early withdrawal penalty include medical bills that total more than 10 percent of the account holder's gross annual income, loss of a job after the age of 55 and bills for unpaid taxes to the IRS. The complete disability or death of the account holder also qualifies for a deferment of the penalty fee. Account holders can withdraw funds without penalty to roll them over into another retirement plan.

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