The IRS does allow for penalty-free withdrawals from a 401(k) if the you are considered to have a qualifying disability. In general, this means that you are unable to perform any substantial gainful activity and the disability is expected to be permanent or of long duration.
To claim this exception, you will have to provide documentation to the IRS, including a written statement from a doctor confirming your condition.
Early withdrawals from retirement accounts like 401(k) s are subject to a 10% penalty in addition to income tax. However, this disability exception allows you to avoid this penalty.
While you may avoid the penalty, the withdrawal is still taxable income and will be reported on your tax return.
To claim the disability exception, you will need to complete IRS Form 5329 and file it with your federal taxes.
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