I will be turing 55 this year in November. I got laid off 2 weeks ago (April 4, 2016). I worked in New York City and live in NJ. Can I withdraw my 401k without penalty?
Yes, I think you will be able to withdraw from your 401(k) without penalty.
Normally, you need to be age 59½ before you can withdraw without incurring a 10% penalty. However, an exception to this rule is described in an IRS 401(k) Resource Guide:
Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances:
- Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.
What this means is that if you leave the company that you have the 401(k) with in the calendar year that you turn 55 (or later), you can take early distributions from the 401(k) without penalty. This year is the year that you turn 55, so it appears that you are eligible for early distributions under this rule.
Probably not. In general, if you withdraw money from a 401k before age 59 1/2, you must pay a 10% penalty.
There are some special cases. You can withdraw money to pay certain unreimbursed medical bills, if you are disabled, or to pay back taxes. You can also withdraw money if you are dead. See https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Tax-on-Early-Distributions.
There is also a provision that you can make penalty-free withdrawals as long as you take them regularly: "Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.)" See https://www.irs.gov/Retirement-Plans/Plan-Sponsor/401(k)-Resource-Guide-Plan-Sponsors-General-Distribution-Rules.
(I don't quite understand this rule. You can't take money out one time, but you can take money out multiple times. Oh well. I think the idea is supposed to be that you can take out money for an early retirement.)
If you plan on retiring now you probably can, as Jay mentioned there is a provision in the law for early retirement, as long as you take annual distributions.