how to avoid early withdrawal penalty on 401k
Normally you can't tap your retirement plan -- whether it's a 401(k) or IRA -- before you turn 59 1/2. Withdrawing the money early is costly. You'll pay not only regular income tax on the money, but a 10 percent penalty on top of that.For a $5,000 withdrawal, for instance, the penalty would be $500.However, federal tax law does allow the Internal Revenue Service to waive the penalty in certain cases.f you've already left your employer, you can avoid the penalty by making not one withdrawal but several -- substantially equal period payments, in IRS-speak. You have to take withdrawals for a minimum of five years, or until you turn 59 1/2, even if that adds up to more than you want to withdraw.