Early withdrawals from a 401(k) typically incur a penalty unless specific exceptions apply, like the Rule of 55, which allows penalty-free withdrawals for those who leave their job at age 55 or older. Despite the tax advantages of 401(k) contributors, like tax-deferred growth and company matches, early retirement can complicate access to these funds. Financial flexibility is crucial, which emphasizes the importance of having savings outside the 401(k) to better prepare for unexpected retirement scenarios or early job departure.
If you take a withdrawal prior to age 59 1/2, you risk a 10% penalty on whatever amount of money you remove.
While savers will generally face a penalty for removing money from a 401(k) before 59 1/2, there’s an exception known as the rule of 55.
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