Withdraw Retirement Funds Without the 10% Penalty
Need your retirement funds unexpectedly? Use this interactive guide to find a penalty-free exception that fits your situation and learn how to avoid costly mistakes.
Step 1: Select the category closest to your situation
Click a button to see a list of relevant exceptions.
Step 2: Click an exception to see the details
⚠️ The Irreversible Mistake: "Rule of 55" Rollover Trap
The "Rule of 55," which allows penalty-free 401(k) withdrawals after leaving a job, is permanently lost the moment you roll the funds into an IRA. You must understand this difference.
✅ The Right Choice: Keep Funds in the 401(k)
Jane, who left her job at 56, keeps her money in the 401(k). She can now take penalty-free distributions from this 401(k) whenever she needs, even before age 59½.
❌ The Wrong Choice: Roll Over to an IRA
John, who also left his job at 56, immediately rolled his 401(k) to an IRA for more investment options. Those funds are now locked up until age 59½ to avoid the 10% penalty.
Action Step: Reporting Correctly to the IRS
To avoid the penalty, you must inform the IRS that you qualify for an exception using Form 5329.
How to Fill Out Form 5329 (Simplified)
If you received a Form 1099-R with code 1 (early distribution), file Form 5329 to waive the penalty as shown below.
Part I - Additional Tax on Early Distributions
1. Early taxable distribution amount . . . . . . . . $ 15,000
2. Amount subject to exception (see code) . . $ 15,000 (Code: 01)
3. Amount subject to tax (Line 1 minus Line 2) . . $ 0
4. Additional tax (Line 3 x 10%) . . . . . . . . . $ 0