Make Penalty-Free Withdrawals From Your Retirement Accounts

I have a 401(k) and a 457 plan from jobs I left many years ago. How old do I need to be to withdraw the money without a penalty?

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You generally must wait until age 59½ to withdraw money from a 401(k) or 403(b) employer-sponsored retirement plan without a 10% early-withdrawal penalty, but there is an exception: You can take penalty-free withdrawals before then if you were age 55 or older when you left your job.

And 457 plans, which are generally available to public-sector workers, have an especially generous rule: You can tap the money without the 10% early-withdrawal penalty anytime after you leave your job, regardless of your age.

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Keep these rules in mind if you’re thinking about rolling the money over into an IRA. You can roll money from a 401(k), 403(b) or 457 plan into an IRA after you leave your job, and there are benefits to IRA rollovers: You’ll have more investing choices; you can choose the administrator; and you may be able to simplify your finances by consolidating several old plans into one account. But when the money is in a traditional IRA, you’ll have to pay a 10% penalty if you take the money before age 59½.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.