Is it possible to take advantage of exceptions to early withdrawal penalties on a 401(k)?
Your question doesn't make much sense. The exceptions are very specific and are listed on this site (IRS.GOV). I can't see how you can use any of the exceptions regularly while still continuing being employed and contributing. In any case, you pay income tax on any distribution that has not been taxed before (which would be a Roth account or a non-deductible IRA contribution). Including the employer's match. Here's the relevant portion: The following additional exceptions apply only to distributions from a   qualified retirement plan other than an IRA: Most companies put the company match in your account each paycheck, but your are not generally vested for the match. If you leave before the specified time period then they pull back part of the matching funds.  I knew somebody who did something similar back in the 1980's with their 401K. They put in 8% of their paycheck after taxes; a 100% match was deposited; then they pulled out the employees contribution every quarter. They did this for the 10 years I knew them. It avoided any tax implications, and they were still saving 8% of their pay for retirement.
"You should call your plan administrator and ask. Few plans allow people to take a ""hardship withdraw"" after leaving because their is no way to pay the funds back since you are no longer working there. The repayment process is done via payroll deduction usually. Also you will most likely be required to withhold 20% for taxes from the 401k. There is no way to defer the taxation unless you take it  next calendar year. You may want to consider doing a rollover into an IRA and taking the w/d and you can do a 60 day rollover. You only get 1 per rolling 12 months now (rather than account do to a change in the rule.) IRA's (not 401k) do give you flexible withholding so you don't have to pay taxes today though they would still be in the tax year based on the calendar date taken out, so if you take it out in 2015 your going to be paying them at the end of this year when you file in April of 2016. Your question seems to be mixing characteristics of both 401k and IRA and while they are similar they do operate very differently." If you withdraw your funds from your 401k and DO NOT mive it into another 401k plan or IRA within 60 days it will constitute as an early distribution which will carry a panlty of 10% as well as have income tax owed on it. Sure it is quite easy depending on income.  If one receives a bonus that is high in relationship to their income, it is very easy to max out a 401K prior to when one intended.  The later in the year such a bonus occurs the more likely that one will max out prematurely.   If one only has a single employer in the year, the custodial company will not accept amounts above the max, so one need not worry about that case.  If there is more than one employer, a refund is typically issued with the appropriate tax withheld.   Assume that a person makes about 60K per year.  They intend to put 12k into their 401K, thus have their contribution set to 20%.  By the beginning of September, they have 8K into their retirement, but they also receive a bonus of 50K.  Their 401K contribution for that bonus will be 10K, and thus they have maxed out their individual contribution for the year. So they will not be able to contribute for the rest of the year, including the first paycheck in September.  They will miss out on any match that the company may supply.  While that sucks, it should be relieved by the bless of receiving such a large bonus. If you withdraw money, even under a hardship clause like for purchasing a house, you'll still own taxes and a penalty on it.  If you are talking about a 401K loan, a loan will have no taxes/penalty, but you'll repay the loan with after-tax reduction of your salary. Max is 50k or 50% of the balance. It maybe up to the 401K administrator whether all of the funds need to go to the down payment and closing costs or whether some can go towards renovations. No, sorry. A change of 401(k) administrator is not an out, otherwise many would flee a bad plan. I'd suggest you only deposit up to the match, but use an IRA if you'd like to save more. A plan with high fees can easily negate the tax benefits and then some. "There is no penalty for foreigners but rather a 30% mandatory income tax withholding from distributions from 401(k) plans. You will ""get it back"" when you file the income tax return for the year and calculate your actual tax liability (including any penalties for a  premature distribution from the 401(k) plan). You are, of course, a US citizen and not a foreigner, and thus are what the IRS calls a US person (which includes not just US citizens but permanent immigrants to the US as well as some temporary visa holders), but it is entirely possible that your 401(k) plan does not know this explicitly. This IRS web page tells 401(k) plan administrators Who can I presume is a US person?   A retirement plan distribution is presumed to be made to a U.S. person only if the withholding agent: A payment that does not meet these rules is presumed to be made to a foreign person.  Your SSN is presumably on file with the 401(k) plan administrator, but perhaps you are retired into a country that does not have an income tax treaty with the US and that's the mailing address that is on file with your 401(k) plan administrator? If so, the 401(k) administrator is merely following the rules and not presuming that you are a US person. So, how can you get around this non-presumption? The IRS document cited above (and the links therein) say that if the 401(k) plan has on file a W-9 form that you submitted to them, and the W-9 form includes your SSN, then the 401(k) plan has valid documentation to associate the distribution as being made to a US person, that is, the 401(k) plan does not need to make any presumptions; that you are a US person has been proved beyond reasonable doubt. So, to answer your question ""Will I be penalized when I later start a regular monthly withdrawal from my 401(k)?"" Yes, you will likely have mandatory 30% income tax withholding on your regular 401(k) distributions unless you have established that you are   a US person to your 401(k) plan by submitting a W-9 form to them." Mostly true. Very few plans allow for in-service withdrawal options. In most cases plans that do, only allow pure after tax sources to be withdrawn prior to age 59.5. The other case would be if you had rolled money from another k plan into your current plan. In almost all plans that money is always accessible.  Otherwise you generally will have to wait to request a distribution until you turn 59.5 years of age. The principal of the contribution can definitely be withdrawn tax-free and penalty-free. However, there is a section that makes me think that the earnings part may be subject to penalty in addition to tax. In Publication 590-A, under Traditional IRAs -> When Can You Withdraw or Use Assets? -> Contributions Returned Before Due Date of Return -> Early Distributions Tax, it says: The 10% additional tax on distributions made before you reach age 59½   does not apply to these tax-free withdrawals of your contributions.   However, the distribution of interest or other income must be reported   on Form 5329 and, unless the distribution qualifies as an exception to   the age 59½ rule, it will be subject to this tax. This section is only specifically about the return of contributions before the due date of return, not a general withdrawal (as you can see from the first sentence that the penalty doesn't apply to contributions, which wouldn't be true of general withdrawals). Therefore, the second sentence must be about the earnings part of the withdrawal that you must make together with the contribution part as part of the return of contributions before the due date of the return. If the penalty it is talking about is only about other types of withdrawals and doesn't apply to the earnings part of the return of contribution before the due date of the return, then this sentence wouldn't make sense as it's in a part that's only about return of contribution before the due date of the return. The first step is to contact the company you are considering using as an administrator. Ask if they have a loan provision.  For what it's worth, I looked at Schwab, and it seems to indicate they do not offer loans against this type of 401(k). That doesn't mean no one does, just that you may need to look around. One additional note related to Roth vs regular: for a regular 401k or IRA, you pay the 10% penalty on any withdrawal.  For a Roth, you can withdraw the contributions early (but not the earnings) without any penalty or tax. Of course, if this is a retirement account it's better to leave it that way.  Personally it's one reason I avoid Roth - in addition to probably being in a higher bracket now, I also would prefer not to be able to touch my money.  But for some there could be advantages in having that ability (such as in an emergency). "Your question is based on incorrect assumptions. Generally, there's no ""penalty"", per se, to make a withdrawal from your RRSP, even if you make a withdrawal earlier than retirement, however you define it. A precise meaning for ""retirement"" with respect to RRSPs is largely irrelevant.* Our U.S. neighbours have a 10% penalty on non-hardship early withdrawals (before age 59 &half;) from retirement accounts like the 401k and IRA. It's an additional measure designed to discourage early withdrawals, and raise more tax.  Yet, in Canada, there is no similar penalty. Individual investments inside your RRSP may have associated penalties, such as the dreaded ""deferred sales charge"" (DSC) of some back-end loaded mutual funds, or such as LSVCC funds that generated additional special tax credits that could get clawed back.  Yet, these early withdrawal penalties are distinct from the RRSP nature of your account.  Choose your investments carefully to avoid these kinds of surprises. Rather, an RRSP is a tax-deferred account, and it works like this:  The government allows you to claim a nice juicy tax deduction, which can reduce your income tax at your marginal rate in the year you make a contribution, or later if you should choose to defer the deduction. The resulting pre-tax money accumulated in your RRSP benefits from further tax deferral: assets can grow without attracting annual income tax on earned interest, dividends, or capital gains. You don't need to declare on your income tax return any of the income earned inside your RRSP, unlike a regular investment account. Here's the rub: Once you decide to withdraw money from your RRSP, the entire amount withdrawn is considered regular income in the year in which you make the withdrawal.  Thus, your withdrawals are subject to income tax, and yes, at your marginal rate.  This is always the case, whether before or after retirement. You mentioned two special programs: The Home Buyers' Plan (HBP), and the Lifelong Learning Plan (LLP).  Neither the HBP nor the LLP permit tax-free withdrawals.  Rather, each of these programs are special kinds of loans that you can borrow from your own RRSP. HBP and LLP loan money isn't taxed when you get it because you are required to pay it back, and you pay it back into your own RRSP: You always pay income tax at your marginal rate on your RRSP withdrawals.** * Above, I said a precise meaning for ""retirement"" with respect to RRSPs is largely irrelevant.  Yet, there are ages that matter:  By the end of the year in which you turn 71, you are required to convert your RRSP to a RRIF. It's similar, but you can no longer contribute, and you must withdraw a minimum amount each year. Other circumstances related to age may qualify for minor tax relief intended for retirees, such as the Age Amount or the Pension Income Credit.  Generally, such measures don't significantly change the fact that you pay income tax on RRSP withdrawals at your marginal rate – these measures raise the minimum you can take out without attracting tax, but most do nothing at the margin.** ** Exception: One might split eligible pension income with a spouse or common-law partner, which may reduce tax at the margin." As far as I know, there is no direct equivalent. An IRA is subject to many rules.  Not only are there early withdrawal penalties, but the ability to deduct contributions to an IRA phases out with one's income level.  Qualified withdrawals from an IRA won't have penalties, but they will be taxed as income.  Contributions to a Roth IRA can be made post-tax and the resulting gains will be tax free, but they cannot be withdrawn early. Another tax-deductable investment is a 529 plan.  These can be withdrawn from at any time, but there is a penalty if the money is not used for educational purposes. A 401K or similar employer-sponsored fund is made with pre-tax dollars unless it is designated as a Roth 401K.  These plans also require money to be withdrawn specifically for retirement, with a 10% penalty for early withdrawal.  Qualifying withdrawals from a regular retirement plan are taxed as income, those from a Roth plan are not (as with an IRA). Money can be made harder to get at by investing in all of the types of funds you can invest in using an IRA through the same brokers under a different type of account, but the contribution will be made with post-tax, non-deductable dollars and the gains will be taxed. "It's all about access to capital: You can borrow against 401ks up to an extent. You can borrow against CDs outside of tax sheltered retirement plans. You can't borrow against an IRA, although there is a situation with a very small time frame that would still be state sanctioned with no tax penalties. I wouldn't recommend it. Annuities come with penalties. I've looked at many possibilities of accessing retirement capital without penalty, and 401k's offer that ability, but its also good to just have savings accounts and investments that are not tax-deferred. Borrowing against 401k pros: http://www.ehow.com/how_2075551_borrow-money-from-401k.html  cons: http://www.investopedia.com/articles/retirement/06/eightreasons401k.asp#axzz29TtJPoXO Outside of your general expenses and play money, money you put toward - say... - a house should be non-tax deferred. Because if you like borrowing, you can always borrow against the house, or any property. The root of the problem is liquidity and access to capital, understanding those fundamental concepts will answer most questions. ""Am I liquid? Yes/No"" ""Can I be liquid without losing money? Yes/No"" As usual, more is more, adjust your priorities accordingly." You should try to take out other loans sufficient to pay off your 401(k) loan if you can.   Maybe you can take out a home equity loan?  You can also ask your bank about unsecured loans.  You should also check the rules for your new employer's 401(k), if you're rolling over your 401(k).  There's a small possibility that you could take out another loan right now and apply it to the previous loan balance. Or if you need to wait, you could use it to help pay off any temporary loans that were needed to avoid the distribution penalty. Bad idea. If you lose your job and need to pay medical expenses, you can withdraw penalty-free. If you lose your job and just withdraw, you will have lower income and lower tax, though you will pay a penalty. If you don't lose your job today, consider your 401(k) an additional protection, just in case you do lose it tomorrow. Just pick the least risky investment option and relax.  Besides, it will diversify your investment and protect you from your own investment decisions. If you are so ready to take a 10% loss, you are likely not so skilled in this area, so it's good to have a backup plan. But of course, do contribute 3% so you get a match.