I am unemployed, almost 60 years old, and need to withdraw early from my 401k. Will there be penalties even if I am in hardship?

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Question:

Question:  I recently lost my job and I am considering taking an early withdrawal from my 401k to pay for unexpected medical bills.  What tax penalties are associated with taking an early deduction?

Response:  The tax basics to understand when thinking about taking an early distribution form a 401k retirement plan is to know that when individuals withdraw funds from their 401k plans before they have reached the required age of 59 ½, they will ne subject to a 10% tax penalty on the early distribution.  There are a few circumstances where the 10% penalty will be waived, and these circumstances are known as the exceptions for early distributions.  To answer your question, the 401k early withdrawal hardship exception may apply if you are using the early distribution to pay for medical bills that are in excess of 7.5% of your adjusted gross income.  If you are over the age of 55 and have left your job, you may also be able to claim that 401k early withdrawal hardship exception and avoid the 10% tax penalty.

Answered by D. Nicole Rosen

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