The conditions to withdraw money from a 401(k) retirement fund vary from plan to plan. Most plans permit hardship disbursements or early withdrawals under special circumstances, such as the purchase, repair or prevention of foreclosure of a primary residence; funeral costs; or permanent total disability, according to CNN Money.Continue Reading
Some flexible 401(k) plans permit repayable loans that a plan holder pays back with interest. However, such loans are usually capped at 50 percent of the employee's vested contribution to the plan and cause a plan holder to lose the benefit of compounded interest paid on a higher fund value, explains CNN Money. In most cases, premature withdrawals from a retirement plan carry a penalty that requires a forfeiture of 10 percent of the borrowed sum, notes Sheyna Steiner for Bankrate.
401(k) plans have several provisions by which a plan holder may make early withdrawals without paying a penalty, such as withdrawals covering medical expenses that constitute more than 10 percent of the plan holder's adjusted gross income. However, such withdrawals are conditional, requiring the withdrawal to be made in the same financial year when the medical expense was incurred, states Steiner. Another provision by the IRS includes early withdrawals under section 72(t) that permits taxable withdrawals for five years based on the life expectancy of the plan holder, according to CNN Money.Learn more about Investing