Hi, Cindytax,
Sorry to hear you lost your job.
Generally, anyone can make an early withdrawal from 401(k) plans at any time (see this article) at any time and for any reason. However, these distributions typically count as taxable income. If you're under the age of 59½, you typically have to pay a 10% penalty on the amount withdrawn. The IRS does allow some exceptions to the penalty, including:
- total and permanent disability
- unreimbursed medical expenses (greater than 7.5% of adjusted gross income)
- employee separation from service during or after the year the employee reaches age 55 (age 50 for most public safety employees) but only from the plan at the job you are leaving (not from other 401(k)s)
A complete list of possible exceptions can be found here.
Note, the funds must be in the former employer's 401(k) to be eligible for this separation exception. If you roll the funds into an IRA, for example, before making your withdrawal, this age 55 exception will not apply. You can keep withdrawing from this 401(k), even if you get another job later, as long as you are continuing to make withdrawals from the original (separating) employer.
Hope this helps.
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Regards,
Karen
TurboTax Expert
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