Harness Money

While the general rule for a 401(k) account is that withdrawals are not allowed before the age of 59½ without incurring penalties, there are certain exceptions that may allow you to make penalty-free withdrawals from your 401(k) under specific circumstances. Here are some common exceptions:

1. Separation from Service: If you separate from service from your employer in or after the year you turn 55 (or 50 for certain public safety employees), you may be eligible to take penalty-free withdrawals from the 401(k) associated with that employer. This exception only applies to the 401(k) account of the employer you separated from, not other 401(k) accounts.
2. Disability: If you become disabled and are unable to engage in any substantial gainful activity, you may qualify for penalty-free withdrawals from your 401(k) account. The definition of disability may vary, and you may need to provide appropriate documentation to support your claim.
3. Substantially Equal Periodic Payments (SEPP) or 72(t) Distributions: Under this exception, you can set up a series of substantially equal periodic payments from your 401(k) account based on your life expectancy or a fixed amortization method. Once the series of payments has begun, you must continue taking them for at least five years or until you reach age 59½, whichever is longer.
4. Unreimbursed Medical Expenses: If you have unreimbursed medical expenses that exceed a certain percentage of your adjusted gross income (AGI), you may be able to withdraw funds from your 401(k) to cover those expenses without incurring penalties. The percentage threshold may vary, so it’s important to check the current IRS guidelines.
5. Qualified Domestic Relations Order (QDRO): In the case of a divorce or legal separation, a QDRO may allow for penalty-free withdrawals from a 401(k) account to be distributed to a former spouse or dependent as part of a divorce settlement.

These exceptions are subject to specific rules and requirements, and it’s essential to understand the details and consult with a financial advisor or tax professional to ensure compliance with IRS regulations. Additionally, keep in mind that while the penalties may be waived, regular income tax will still apply to any taxable portion of the withdrawal.