How to get around the 401(k) early withdrawal penalty

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Study the rules carefully.

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Technically, you’re not supposed to touch the money in your 401(k) until you’re at least 59 1/2—and for good reason. Unless you’re in dire straits, it’ll cost you.

The IRS charges a 20% tax withholding and a 10% penalty for early withdrawals. Plus, if you spend the money in your 401(k), it’s no longer there for you in retirement. That said, there are some ways to access your savings before age 59 1/2 without paying a penalty. (You’ll still be taxed.) But read the fine print, and tread carefully. Remember: This is your nest egg we’re dealing with.

You know how a new car loses a chunk of its value the minute you drive it off the lot? It’s similar when you take an early withdrawal from your 401(k). The amount you planned to get shrinks—by a lot:

But if you must, you must. So if you can find a way to sidestep the 10% zinger, that’s at least some consolation.

If you become or already are permanently disabled, you would still owe taxes on an early withdrawal, but you likely wouldn’t owe a penalty.

If you die and your beneficiary inherits the 401(k) funds, those distributions would be taxed, but the beneficiary wouldn’t owe the 10% penalty.

These are the simple, logical exceptions. But, assuming your 401(k) plan allows early withdrawals (not all do, so please check), there are other circumstances under which you may take an early withdrawal and pay the tax, but avoid getting hit with the additional 10% penalty. Let’s start with so-called “hardship” withdrawals.

Different 401(k) plans may have different rules, so again, check with your plan administrator about whether you qualify for a hardship withdrawal. But the IRS defines it as “an immediate and heavy financial need.” Here are some examples:

Before you can qualify under one of these conditions, you’ll need to prove that you can’t get the money any other way, and you won’t qualify for more than the hardship amount.

If you don’t meet the criteria for a hardship withdrawal, there are some other ways you might be able to avoid paying that extra 10%. In all of the cases listed below, the restrictions can be complicated, so make sure you qualify:

This is not an exhaustive list, so if you believe your situation may allow you to avoid a penalty, it’s a good idea to inquire. For a full list, visit the IRS “exceptions to tax on early distributions” page.

Life happens, but tapping your 401(k) is not the only solution. You can consider a 401(k) loan, where you wouldn’t owe taxes or pay a penalty. But 401(k) loans come with stringent repayment terms.

Personal loans or home equity loans and lines of credit might also be feasible options. But you have to consider the long-term repayment costs of taking on debt. The most important thing is to explore all your options and minimize the price you pay now—and the cost to you in the future.