How much is a 401(k) early withdrawal penalty?

If you withdraw money from your 401 (k) account before age 59 1/2, you will need to pay a 10% early withdrawal penalty in addition to income tax on the distribution. For someone paying a 24% tax rate, a $5,000 early 401 (k) withdrawal will cost $1,700 in taxes and penalties. There are a couple of exceptions to the 401 (k) early withdrawal penalty.

How do I avoid 401(k) fees and penalties?

Here's how to bypass common 401 (k) fees and penalties: Avoid the 401 (k) early withdrawal penalty. Shop around for low-cost funds. Read your 401 (k) fee disclosure statement. Don't leave a job before you vest in the 401 (k) plan. Directly roll over your 401 (k) to a new account. Compare 401 (k) loans to other borrowing options.

What are 401(k) withdrawal rules?

401 (k) withdrawal rules affect when account holders can take withdrawals without penalty. If you retire after age 59½, you can start taking withdrawals without paying an early withdrawal penalty. The IRS allows for hardship withdrawals that usually are not subject to the 10% penalty.