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Frequently Asked Question

What distributions from a 401k are not subject to the 10% early withdrawal penalty?

Answer: There are only a couple of situations where the IRS will waive the 10% early withdrawal penalty.

  • Payments up to the amount of your deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year.
  • There is a Qualified domestic Relations Order (QDRO) from the courts that mandate funds from your account go to a former spouse, child, or dependent.
  • You have separated from service and were at least 55 years of age when you did so (or separated from service in the year in which you turned 55).
  • You have elect a Section 72(t) distribution.
  • You are totally disabled. (The key to the disability exception seems to lie in the permanence of the condition, not the severity. Therefore, to claim this exemption you have to furnish not only information proving that you are totally disabled, but also information on the permanence of the disability.)
  • You have died and your beneficiary gets the money.
  • You have made contributions under special automatic enrollment rules that are withdrawn pursuant to your request within 90 days of enrollment.
  • Distributions that are qualified reservist distributions. Generally, these are distributions made to individuals that are called to active duty for at least 180 days after September 11, 2001.
  • Distributions made due to an IRS levy of the plan under section 6331.

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.


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