401K Withdrawal Rules: How to Withdraw from a 401K Without a Penalty

Abstract

The court will use a special calculation to determine the amount of the QDRO. Once the funds are distributed under the order, the plan participant will not be liable for the ordinary tax or the early withdrawal penalty on the amount transferred. If the distribution is paid to a child or other dependent, the plan participant must pay ordinary income tax, not the early withdrawal penalty. The employee must be separated from service with certain retirement plans, with the employer sponsoring the plan. Plan-to-Plan Rollovers 401(k) plan withdrawals can avoid ordinary income tax and the early withdrawal penalty if the funds are rolled into another qualified plan. Though the plan participant will have up to 60 days to move the funds from one plan to another, it's usually best to arrange a trustee-to-trustee direct transfer. Before jumping into a loan, there are specific rules concerning 401(k) loans you need to be aware of: Plan loans are available for 401(k), 403(b), 457(b), profit-sharing, and money purchase plans. How the 10% Early Withdrawal Penalty can Affect Your 401(k) Withdrawals Any early withdrawals you consider taking from a 401(k) plan should be evaluated against the tax liability it will cause.