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Taking money out of a 401k early is normally not a good idea because it comes with a number of disadvantages. The more money that an investor takes out of their 401k today the less money that they would have in the future when they need it the most.

If someone decides to take a 401k withdrawal out prior to the time when they turn 59 ½ they may be hit with a 10% penalty on that money. And this is in addition the the taxes which they would also have to pay.

This could be pretty hard to deal with because a large percentage of the money that an investor takes out would be to pay these bills. These early 401k withdrawal rules are not very kind to the average investor; however there are a couple ways around them.

One example of this would be if you qualify to take out a hardship withdrawal. In this case you may be able to take money out without paying the extra 10% penalty. However you do still need to pay taxes on it.

One other way to avoid this penalty is by taking a 401k loan. By taking out a loan you will not have to pay the taxes or early withdraw penalty on it. However you will have to pay back the loan with interest.

In addition some 401k plans will limit the amount you can deposit into an account while you still have the loan out. This could really hurt your savings because not only would it force you to make interest payments, but you would also be forced to either stop or lower the amount you are putting into your 401k. If you take out a loan for too long it may be even more harmful then taking out a simple withdraw.

Basically taking out money from a 401k is supposed to be a last resort scenario. It can be harmful but in some cases it may be the only option an investor has.