How Do I Avoid a 10% Penalty Pre 59 1/2?

Updated: May 13, 2019

Today we're going to talk about how to avoid a 10% penalty when taking money from your retirement account, pre 59 1/2.

Option #1 - Take a loan. It is tax-free, but of course you have to pay back this loan. Personally, I don't think this is good idea. They're very expensive and you can be penalized if it's not paid back according to the terms

Option #2 - The IRS Rule #55. This rule allows an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 1/2 to pull money out of his 401(k) or 403(b) plan without penalty. This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.

Option #3 - Individual K. If you leave your corporate job and become a sole proprietor you have the option of rolling your 401K into a Individual K which allows loan provisions, unlike an IRA.

Options #4 - Section 72(t) Distribution. Using this type of distribution rule, you would start by calculating your life expectancy and use that to calculate five substantially equal payments from a retirement plan for five years in a row before the age of 59 1/2. But distributions can occur at any age and they're not bound by the same age 55 threshold as the Rule of 55.

What about Annuities? Similar to the 72(t) it allows you you take equal and periodic payments until your 59.5 or 10 years, whichever comes first.

Why is this important? If you plan on retiring before you're 59 1/2 than you will want to know your options so that you can create a financial plan for retirement that may take these circumstances into consideration.

#401KLoan #IRAloan #retrementplanning #loans #borrowingfromretirement

147 views0 comments



Being virtual means you do not have to leave the  safety and comfort of your home.  As long as you have a device and the internet, we can meet.  Meet us when it is convenient for you, from wherever you are. 

We can engage with you via Zoom, a secure venue or phone call  

Want us to contact you?  Just fill out the form below and we get back to you as soon as possible.

To schedule a meeting in person call our office at (302) 251-8901


32828 Reba Rd, Suite C

Millville, DE  19967


(302) 251-8901

Check the background of your financial professional on FINRA's BrokerCheck- https://brokercheck.finra.org The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by third parties to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

*Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Loftus Wealth Strategies and Untied Planners Financial Services are not affiliated. 

*We are licensed to sell Securities in DE,PA, MD,IL,NC. Insurance-related services may not be provided to individuals residing in any states other than DE,PA, MD,IL,NC.


  • YouTube - White Circle
  • Facebook - White Circle
  • LinkedIn - White Circle
  • Twitter - White Circle