3 Ways Early Retirees Can Tap Retirement Accounts Without a 10% Penalty

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
1. Death (401k & IRA)
2. Total and permanent disability (401k & IRA)
3. Military: certain distributions to qualified military reservists called to active duty (401k & IRA)
4. Medical: amount of unreimbursed medical expenses (>10% AGI for 2021, >7.5% AGI; for 2017 – 2020) (401k & IRA)
5. 401k Loan
  - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans
6. Divorce: to an alternate payee under a Qualified Domestic Relations Order
7. 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)
1. Education: qualified higher education expenses
2. Homebuyers: qualified first-time homebuyers, up to $10,000
Early Retirement Exceptions
1. 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
    - https://www.thetaxadviser.com/issues/2008/oct/substantiallyequalperiodicpaymentsfromanira.html
2. 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)**
3. Roth IRA Conversion Ladder
  - https://www.madfientist.com/how-to-access-retirement-funds-early/
Sources

Rob Berger

Rob Berger is a former securities lawyer and founding editor of Forbes Money Advisor. He is the author of Retire Before Mom and Dad and the personality behind the Financial Freedom Show.