Paying off home with funds from 401K

[OTISFIELDJACKIE]

I was recently let go from my employment after 36 years.  I am currently 57 years old and, and am considering withdrawing $100K from my 401K to pay off my home.  If I am reading the associated documents correctly, I would not have to pay the 10% penalty if I do this given my age at the time of termination.  Can anyone confirm this for me?

Also, I am receiving severance pay and will continue to receive those payment until January 2025.  The termination has hit me quite hard, and I am struggling with daily life at the moment.  I realize withdrawing this amount of money from my 401k would not be the best financial move, but I think it would give me piece of mind, and the breathing room to decide what I want to do from here.

[ClarissaA1]

You have taken a great first step in your decision making process by thinking about the tax implications before you touch the money.  While taking a large distribution immediately after an unexpected job loss, may not be the best option for everyone, it might be what is right for you.    

For most retirement distributions before age 59 and 1/2, there is an additional tax penalty of 10% (this is the "early distribution penalty".)  There are some limited exceptions to the early distribution penalty.  The one you are referring to is the exception that applies when the taxpayer separates from service with the employer after they have reached age 55.  This exception only applies to employer-sponsored plans (such as a 401(k) or a 403(b) plan) and does not apply to individually owned retirement accounts (traditional IRA, etc.) 
IRS: Exceptions to Tax on Early Distributions 

You should also consider that the 401(k) distribution will still be subject to ordinary income tax, just not the additional 10% penalty.  Plan for and be prepared to pay taxes on the entire distribution you are considering at the highest tax rate you are subject to based on the rest of your taxable income for the year.   Since you were working, and you will be receiving severance pay for the rest of the year, a large 401k distribution could push you into a higher tax bracket than you would normally fall into. 

Edited 6/27/24 6:53A PST @OTISFIELDJACKIE @dmertz 

[dmertz]

"The separation from service exception applies only in the year that you leave the employment (so it's available for this year, but you will need to decide if it's the best option for you before the end of the year.)"

Not true.  There is no requirement that a distribution using this exception be made by the end of the year that you separate from service.  If you qualify for the exception, the exception will also apply in future years for distributions made before age 59½.  (Distributions made after age 59½ will be normal distributions that will not need this exception.)