Early Withdrawal Penalties

• You can begin receiving income from a qualified retirement plan -- which includes most pensions, 401(k) plans and 403(b) plans -- at age 59 1/2 without incurring penalties from the IRS. However, if you take distributions from any qualified retirement plan before age 59 1/2, you must typically pay the IRS a 10 percent penalty on the amount you withdraw, unless you qualify for a hardship withdrawal.
  
  

Hardship Withdrawals From All Plans

• You can qualify for a hardship withdrawal without paying a penalty from any qualified retirement plan if you can show that you needed the money because of a permanent disability. You may also qualify for a hardship withdrawal if you had medical expenses that exceeded 7.5 percent of your adjusted gross income and weren't reimbursed by an employer or insurance company.
  
  

Additional Qualifications for Specific Plans

• If your retirement plan is a 401(k) or 403(b), you may also qualify for a hardship withdrawal if you used the money to purchase a home, prevent foreclosure or eviction, pay for higher education, repair damage to your home or pay funeral expenses. If your retirement plan is a 457(b), you may qualify for a hardship withdrawal if you need money because of an accident, illness or casualty loss of property.
  
  

Considerations

• If you qualify for exemption from early withdrawal penalties because of a hardship, you must still pay income tax on the amount you receive. Aside from hardship withdrawals, the IRS also exempts you from paying early withdrawal penalties if you are over 55 and no longer working or if you are rolling the plan into an IRA. Individuals who inherit qualified retirement plans won't pay early withdrawal penalties, either.