How To Crack Into Your Nest Egg Early

401(k)s allow penalty-free withdrawals at younger ages than IRAs


Retirement accounts are generally intended to finance life after you leave the workforce. When you crack into your nest egg before retirement you rob yourself of tax-deferred growth. But if you do need to access to your retirement stash before age 59 ½, there are a variety of ways to avoid paying an early withdrawal penalty. Medical bills, a first home, and even college tuition are among the Uncle Sam approved ways to spend your IRA balance.

[Check out these 7 Penalty-Free Ways to Tap Your IRA Before Retirement.]

The type of retirement account also plays a role. Retirees can begin taking penalty-free 401(k) withdrawals at age 55. “If you work up to your 55th birthday and then leave you can take the money out of a 401(k) [without penalty],” says Mary Rowland, author of The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio from the Bottom Up. But if you roll your nest egg into an IRA you’ll need to wait until age 59 ½ to take IRA distributions without the usual 10 percent early withdrawal penalty.

[See Rethinking 401(k) Rollovers.]