When Can You Withdraw from Your 401k or IRA and Avoid Penalties?

Withdrawing money early from your 401(k), your IRA or some other type of retirement fund is something that may be necessary for a wide range of reasons. Maybe you're dealing with unexpected medical bills and could use a bit of financial assistance. Perhaps you've gone through some type of life-changing event like a divorce.

Regardless — it happens, and it's totally understandable. It is not, however, a decision that should be made lightly. If you want to withdraw funds from your 401(k) or IRA and avoid the often hefty penalties that follow, you'll need to keep a few key things in mind.

Avoiding Penalties on Retirement Accounts: What You Need to Know

All told, there are actually a number of different ways that you can qualify for a penalty exemption on withdrawals from these types of retirement accounts — provided that you're using that money for very specific purposes. Currently, these include but are not limited to things like:

  • Education expenses. Provided that your expenses count as tuition, books, fees to a university or other supplies, you're allowed to take an IRA distribution for "qualified higher education expenses." 

  • You're about to buy a new home. If you are buying a home in your name for the first time, you can take out up to $10,000 from your IRA without suffering a penalty. If you happen to be married, your spouse is able to do the same — so long as neither of you has had any type of ownership interest in another piece of property at any point over the last two years. 

  • Medical expenses. If you happen to be dealing with medical expenses that themselves are greater than 10% of your adjusted gross income for the current calendar year, you'll be happy to know that you can pay for them directly out of your IRA without dealing with a penalty of any kind. 

  • Family circumstances. If at any point you've been required to pay funds to a member of your family (like your children, dependents or even a divorced husband or wife), you can get the penalty fee waived on your withdrawal.
Provided that your employer allows it, you can also take out what is called a 401(k) loan. This is exactly what it sounds like - you're borrowing against your 401(k) up to $50,000 or half of your account balance, whichever is less. The best part about this method, in particular, is that it usually doesn't even require a credit check, so you won't have to deal with a "hard pull" that temporarily hurts your credit score.

Generally speaking, the maximum loan term is up to five years. In certain circumstances, however, this can go up to 15 years. Not all employer plans actually allow this, however, so you'll want to talk with your company's human resources department to make sure this is actually an option that is on the table for your particular circumstances.

One of the most important things to understand about all of this, however, is the idea that "penalty free" and "tax free" are two totally separate things. Regardless of whether or not you qualify for a penalty exemption, you will still need to pay taxes on the money that you withdraw at ordinary income rates. The only major exception to this is in the case of a Roth IRA, which you can take money out of penalty free AND tax free after five years. You may be able to enjoy the same benefit on a Roth 401(k), but only if your employer plan specifically permits this.

Regardless, as you can see, avoiding penalties on these types of funds is not necessarily as difficult as you probably thought it was going to be. Provided you go about things in the right way, you'll have fast access to the funds you need when you need them the most.



Share this article...

Sign up for our newsletter.

Each month, we will send you a roundup of our latest blog content covering the tax and bookkeeping tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

We care about the protection of your data.

Junglebooks Affiliate Program

Why Partner with Us?

With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Industry-Leading Expertise

Our firm is a leader in the accounting industry, providing comprehensive services that include tax preparation, bookkeeping, financial planning, and business consulting. With years of experience and a team of certified professionals, we deliver exceptional results to our clients.

Attractive Commissions

We value our affiliates and offer competitive commission rates for every client you refer who signs up for our services. The more clients you refer, the more you earn.

Comprehensive Support

We provide our affiliates with all the resources needed to succeed, including marketing materials, dedicated support, and regular updates on our services. You’ll have everything you need to effectively promote our firm and earn commissions.

Trusted Reputation

Our firm has built a solid reputation for excellence and trustworthiness. When you refer clients to us, you can be confident that they will receive the highest level of service and satisfaction.

Frequently Asked Questions

This firm prepares tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Our firm’s seasoned professionals are experts in all areas of taxation including:


  • Individual Returns
  • Payroll Tax Issues
  • Business Returns
  • Sales Tax Returns
  • Rental Income Returns
  • Business Consultation
  • Expatriate Returns
  • Fiduciary & Estate Returns
  • Corporation Returns
  • Bookkeeping
  • Partnership Returns
  • LLC Returns

Our firm offers a full range of planning services including, but not limited to:


  • Individual Tax Planning
  • Business Tax Planning
  • Business Organization
  • Rental Properties
  • Foreclosures and Repossessions
  • Retirement
  • Investments
  • Sales and Exchanges
  • Pension Plans
  • Education Planning
  • Finance & Refinance Planning
  • Home Purchase and Sale Planning
We are here for you twelve months a year, not just during tax season. Whether you have a simple tax question, need advice on the tax implications of a business decision, or want clarification on a government notice, feel free to give us a call.
We maintain a policy of the strictest confidence concerning our clients’ affairs. You can rest assured that no one will learn about your business or tax status – even relatives, associates or friends who might have referred you to us.