Best Ways to Use Your 401(k) Without a Penalty
March 21, 2023
For those who invest in their 401(k) plan, the traditional thinking is to wait until retirement before taking distributions or withdrawals from the account.
If you take funds out too early, or before the age of 59-1/2, the Internal Revenue Service (IRS) could charge you with a 10% early withdrawal penalty plus income taxes.
However, life events can happen, which might put you in a position where you need to tap into your retirement funds earlier than expected. The good news is that there are a few ways to withdraw from your 401(k) early without incurring a penalty from the IRS.
- If you qualify for a hardship withdrawal, certain immediate expenses won't incur a tax penalty, including education, healthcare, and primary residence expenses.
- You may also be eligible to take a loan from your 401(k), which incurs neither penalty nor taxes, but the loan must be repaid.
- There are also special circumstances where you can withdraw funds penalty-free from a recent employer if you have reached the age of 55.
The simplest and best way to tap your 401(k) without incurring a tax penalty is to use it for the purpose it was intended for—providing retirement income. However, read this article if you need money for a major expense.
Stout Bowman regularly posts important and interesting information on our blog. Current topics include credit/debit/loans, estate planning, insurance, investing, Medicare, retirement, Social Security and taxes, as well as general information that we think you might find of interest. 
We have been publishing an email newsletter for our clients and friends since 2016. Links to all of the newsletters can be found on our newsletter page, with the most recent listed first. We try to keep our emails short, so there are typically only three articles in each one, most of which link to other articles in the financial and mainstream press. 
We also have a page on our site for the latest news about our company, notice of any upcoming events, and a market commentary to discuss what our advisors and other financial industry experts conclude about the previous investment performance and what we might expect the markets and the economy will do in the coming months. 
Many news organizations offer what is called a Rich Site Summary (RSS) feed, a listing of the latest changes to their site's content. We have subscribed to several of these news feeds and present a list of their latest ten articles on a page on this website to save our clients the hassle of going to multiple websites just to see what is available. Currently, we subscribe to 
At Stout Bowman every investment client is first a financial planning client; it's important to go through that process before we make any professional investment recommendations. Therefore, we strive to make financial planning understandable and comfortable every step of the way. One way to do that is to provide our clients access to financial education resources. To that end, we have subscribed to educational websites to receive their news feeds and present a list of their latest ten articles on a page on this website. Currently, we subscribe to