Before addressing the issue of how it is possible to access and withdraw funds from the 401(k) early with little or even in some cases, no penalty, it is important to understand how this system works. Before recently, all people in this country used to have pensions, meaning that when they reached a certain age, different for men and women, they would stop working, gain a ‘pensioner’ status and receive money from the government, that their employers have been paying all the years during which that person has been employed. A couple of decades ago, namely in the 1980’s, legislation and taxation changes have led to the creation of the so-called 401(k) which is a retirement savings account that is credited and accumulated by the employers.

This way, a certain amount off the salary is saved into that savings plan on a monthly or annual basis and it is doesn’t have to be taxed immediately, up until the point when the money is withdrawn from it. Nowadays, managing a 401(k) has become an expert technique and an art itself, since there are various ways in which the spread is managed, varying from bonds, to stocks, to financial market investments, there are certain loopholes that can be taken advantage of, and some plans are better than others. While this savings plan has helped and aided many people to have a steady ‘income’ when they retire, it must be said that there is a number of restrictions and especially costs when it comes to cashing out and receiving some of those funds before retiring, which are related to the taxes that need to be paid on that income. Then comes the big question – ‘Penalty-free – how to claim your 401k early’.

First of all, there are 2 types of 401(k) plans, one which is traditional, and the funds invested are not taxed immediately, and the Roth plan– which involves the taxation of the contributions prior their deposit into the savings plan. The first one is appealing in that the final income, on which you have to pay the tax drops, which means that you have to pay less from your salary as taxes, but in the long run it has a major drawback in that unless a person is over 59 years and 6 months old, or they left their job before the age of 55, they don’t have the right to access your 401(k). The other plan, though initially, less attractive, means that the employee immediately pays the taxes on the amount that is deposited, thus they are given full access to withdraw the money at any point, given that they have had that 401(k) for over 5 years.

When asked the question of how you can access your savings plan penalty-free – how to claim your 401k early, experts in the field offer the following examples – turns out that if the money that you wish to withdraw is to pay for college, be it for you, or your immediate family, including grandchildren, then you are exempt from the tax. It is also true that if there are certain medical fees that need to be paid that exceed 7.5% of the overall income before tax, no penalty will be charged. The same stands for expenses related to a sudden disability, under the condition that it is proved by a professional doctor. There are also the equal periodic payments, as well as leaving an employer at or after the age of 55, and transferring to another retirement plan, which means that though there are strict conditions for money withdrawal from the 401(k), there are certain ways that if one is in desperate need for cash, they can get it.