Since a 401k plan should also serve the purpose that any saving plan does – giving you financial security during a crisis, you can also cash out your 401k without any penalties. There is a provision for early withdrawal due to inevitable reasons that also save you from the tax implications. If you want to know how can I cash out my 401k without penalties, go through the following points to know about cash out without penalties
What Reasons Can You Withdraw From 401k Without Penalty?
There are many cases in which you can withdraw your retirement funds before your retirement age and that too without any penalty. Here are some of the reasons you can withdraw from 401k without penalty listed below:
Divorce: If you have recently gone through a divorce or are currently going through one and need to pay your partner, child or anyone dependent on you. You can ask your attorney and see if you can cash out your 401k plan without having to pay the taxes.
Medical Expenses: Another condition where an early cashout of 401k is permitted without any penalties is a medical emergency that is not covered by your health insurance. If the expenditure on which exceeds 7.5% of your gross annual income, you can cash out your 401k plan for it without any additional taxes. But here is the catch, these expenses should exceed your annual income. Thus it should be checked before you take this important decision.
Retirement: Since the entire concept of a 401k plan is making your retired life safe thus if you are retiring, the cashout is going to be devoid of any taxes. But hey! This is applicable only when you are over 55 so you might want to wait until then.
Hardship Withdrawal: Some 401k Plans also allow early withdrawal for situations that can not be survived without relying on the savings in it. These include educational expenses, buying a home or repairing one, funeral expenses or if you are a victim of a disaster for which relief package was released. But this should be done only after considering the long term implication as you will be putting your future security at risk.
Retirement Plan: If you are withdrawing the funds from your 401k plan only to invest in another retirement plan, you can still save from tax implications. But this is possible only when you go for a direct rollover your 401k Plan into an IRA.
Disability: If you are suffering from any kind of disability you can cash out your 401k plan without worrying about any tax implications.