Q. My wife lost her job in a downsizing. Can she withdraw funds from her 401(k) without paying a penalty? G.A., Orlando, Fla.
A. It depends. Generally, you are required to pay a 10% penalty tax if you take withdrawals from a 401(k) or other qualified plan before age 59½. However, there are certain exceptions to this rule.
For example, no penalty is imposed if you “separate from service”—in other words, you quit, retire or get fired or laid off—and you’re age 55 or older. If your spouse is in this situation, she won’t be penalized for an early withdrawal.
Remember that distributions from a 401(k) are subject to regular income tax at ordinary income rates.