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Take Early Withdrawals Penalty-Free

Is 60 the new 40? People today live longer than they did in earlier times and stay more active later in life. But the tax law provisions based on age, especially those relating to employer retirement plans and IRAs, haven’t changed. In other words, regardless of your lifestyle, the magic age to begin penalty-free distributions remains 59½.

What about early withdrawals made before that age? Generally, those will be subject to a 10% penalty in addition to the regular income tax you owe. But several key exceptions to the 10% penalty are written into the tax code. The list differs, depending on whether you’re withdrawing funds from a 401(k) or another plan from your job or an IRA you set up on your own.

Here’s a rundown on exceptions to the 10% penalty for withdrawals from 401(k)-type plans. They include distributions:

The exceptions to the 10% penalty tax for early distributions from IRAs include those that are:

There are some significant differences between these two lists. For example, a payout at age 55 or older when you leave a job is an exception for employer plan distributions, but not IRAs. Conversely, the exception for qualified first-time homebuyer expenses only applies to IRAs. We can help guide you in making the withdrawal decisions that are best for your situation.