3 Ways Early Retirees Can Tap Retirement Accounts Without a 10% Penalty
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- Summary: In most cases, distributions from a 401k, IRA or other retirement account before the account owner reaches the age of 59.5 are subject to a 10% penalty. There are, however, a number of exceptions. Some of the exceptions are unique to IRAs, while others are unique to 401k and other Workplace Retirement Plans.
- Hardship Exceptions
- Death (401k & IRA)
- Total and permanent disability (401k & IRA)
- Military: certain distributions to qualified military reservists called to active duty (401k & IRA)
- Medical: amount of unreimbursed medical expenses (>10% AGI for 2021, >7.5% AGI; for 2017 – 2020) (401k & IRA)
- 401k Loan
- Divorce: to an alternate payee under a Qualified Domestic Relations Order
- Permissive withdrawals from a plan with auto enrollment features (401k only)
- Must elect to withdrawal the funds within the time allowed by the plan (30 to 90 days)
- Forfeit any employer matching contributions
- https://www.irs.gov/retirement-plans/faqs-auto-enrollment-can-an-employee-withdraw-any-automatic-enrollment-contributions-from-the-retirement-plan
- Invest in Your Future Exceptions (IRAs Only)
- Education: qualified higher education expenses
- Homebuyers: qualified first-time homebuyers, up to $10,000
- Early Retirement Exceptions
- Equal Payments: series of substantially equal payments (for 401k, cannot work for employer) (401k & IRA)
- https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments
- Payments can be based on just one account or multiple accounts
- Age 55 (401k Only): the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)**
- Roth IRA Conversion Ladder
- Equal Payments: series of substantially equal payments (for 401k, cannot work for employer) (401k & IRA)
- Sources
