How to Withdraw 401k Money With No Penalty

Many employees encounter the issue of whether to withdraw 401k money to pay for large expenses. Investors may need to pay off credit card debt, make an emergency purchase or stave off hardship as defined by the Internal Revenue Service. There are several ways you can withdraw 401k money with no penalty as long as you stay within federal regulations.

Things You'll Need

• Records for hardship-related loans

Instructions

1. Wait until you have reached the minimum age for withdrawal to take out 401k money with no penalty. Your account cannot be accessed for regular withdrawals until you have reached 59 years and 6 months old. You must begin accessing your 401k account at age 70 to avoid penalties and taxes.

2. Request your old 401k funds from past employers in the form of a check. You are allowed to receive a check for 401k money for deposit into a new 401k or IRA at your present employer. You must deposit this money within 60 days of receipt to incur no penalties or income taxes.

3. Utilize a Roth 401k through your employer for flexible withdrawal policies. The Roth 401k features after-tax contributions from your paycheck. These funds can be accessed without penalty up to a certain limit each year.

4. Take out a loan from your 401k to avoid penalties associated with early withdrawal. State and federal tax regulations allow you to borrow funds from your retirement account in limited circumstances without income taxes or penalties.

5. Use your 401k without penalty if you use funds to prevent hardship at home. You can use a limited amount of 401k money to pay off bills to avoid eviction from your home or apartment. You can also take advantage of flexible repayment options for 401k loans for a down payment on a home purchase.

6. Seek advanced education by taking out a loan from your 401k account. You can withdraw funds from your employee-sponsored account each year to pay off tuition and supplies necessary to advance your career.

7. Pay off medical bills not insured by your employer's plan with principal from your account. These withdrawals do not accrue penalties or income taxes as long as you pay off the loan on time and maintain accurate records for IRS assessment.

Tips & Warnings

• Lower your deferral for each paycheck if you anticipate long-term financial burdens. The machinations of 401k loans and withdrawals makes it easier to adjust your contributions for a short period instead of taking out retirement funds. You should use your 401k account as a last resort if you plan to withdraw funds.