Withdrawing money from a 401(k) plan is known as an IRA distribution, and the terms include paying incurred state and federal taxes immediately and paying a 10 percent fee if below the age of 59. According to Fidelity, it is possible to avoid the penalty in certain hardship cases.
Fidelity states that the 10 percent early withdrawal fee is avoidable in specific hardship cases. These cases include first house purchase, specific educational expenses, death and disability, uninsured medical expenses, and health insurance for those who are unemployed. In order to receive the hardship exemption, it is necessary to fill out IRS form 5329.
When making an IRA distribution between the ages of 59 and 70, it is not necessary to pay a 10 percent fee, even without meeting any of the hardship requirements, says Fidelity. However, it is important to consider both state and federal tax deductions in this age group. After the age of 70, it is no longer only possible to withdraw money, it is obligatory to do so. These withdrawals are known as MRDs, or Minimum Required Distributions. If an IRA holder does not make an appropriate MRD, he incurs a severe financial penalty, but Fidelity allows for automatic withdrawals to avoid this problem.