Owners of 401(k) plans can withdraw funds without penalty if they are at least 59 1/2 years old, become completely disabled, or roll the funds over into another qualified retirement plan or individual retirement arrangement, reports the Internal Revenue Service. People can also withdraw funds penalty-free if the distribution qualifies as an exception. Beneficiaries of decedent 401(k) owners can withdraw funds without penalty.
Exceptions to the 10 percent penalty tax for early distributions from 401(k) plans include funds that owners use for medical expenses totaling 10 percent or more of adjusted gross income and payment of federal tax levies, explains the IRS. Owners can withdraw excess contributions from their plans without penalty, and reservists called to active duty can receive penalty-free distributions. Employees who retire at age 55 or later can withdraw funds from their 401(k) plans without penalty. Owners can also withdraw funds early if they set up a series of substantially equal periodic payments that last at least five years or until the owner turns 59 1/2.
Another option for withdrawing funds without penalty is a 401(k) loan, according to the IRS. Plan owners can borrow up to half of the balance of the account to a maximum of $50,000, as of 2015. However, unless the withdrawal is for a home loan, they must repay the loan within five years.