Your question, I believe, is really whether you can make the withdrawl without the 10% penalty *or other financial impacts..* The short general answer is if the 401K is NOT an IRA, you won't have a 10% penalty if you retire at 55 and draw out. However, read the following.. - An early IRA distribution or 401k withdrawal are those that you receive before reaching the age of 59 1/2;. To be more accurate, the 10% penalty is imposed on early withdrawal from any qualified retirement plan, including: A qualified employee annuity plan An IRA that is not an educational IRA A qualified employee plan / 401k plan A tax sheltered annuity plan for employees of public schools or other tax exempt organizations The IRS does NOT impose a penalty on withdrawals or distributions that you intent to roll over to another retirement plan. The investment is still serving its intended purpose - retirement income. For all qualified retirement plans, the IRS also allows for hardship-type withdrawals that fall into one or more of the following five categories: Distributions or withdrawals made to your estate or beneficiary after your death Distributions or withdrawals made because your became permanently disabled If your medical expenses exceed 7.5% of your adjusted gross income, you may make a withdrawal up to the amount of your medical expenses in excess of the 7.5% Distributions made to the IRS to pay a levy on the plan itself Distributions or withdrawals made as part of a series of substantially equal periodic payments over the life expectancy of the owner and the beneficiary. If these withdrawals come from a plan other than an IRA, then you must separate from your employer before payments begin for this exception. 401k Withdrawal Exceptions The following three exceptions apply only to withdrawals or distributions from a retirement plan - other than an IRA: Distributions or withdrawals made to you after termination of employment, if the separation from your employer occurred in or after the calendar year you reached age 55 Distributions of dividends from employee stock ownership plans Distributions or withdrawals made to an alternate payee under a qualified domestic relations order. This often happens as part of a divorce settlement. Finally, there are three additional exceptions that the IRS allows that apply *only* to withdrawals from an IRA: Distributions or withdrawals equal to or less than any qualified higher education expenses Distributions or withdrawals made to pay for a *first-time* home purchase Distributions or withdrawals made to pay health insurance premiums if you are unemployed Please keep in mind that all of the above noted exceptions apply only to the 10% penalty tax. For example, a 401k withdrawal that meets one of the above exceptions (55 years old in your case) is still subject to taxes such as federal income tax withholding. In fact, you may have to make estimate tax payments to avoid withholding penalties. Remember - the government established retirement plans such as 401k plans to provide for retirement income. However, the government realizes that under certain conditions, you may need to make a withdrawal before retirement. Dipping into your retirement funds is a big decision and worth discussing with a tax advisor or consultant to see if less expensive alternatives exist. Source: http://www.money-zine.com/Financial-Planning/Retirement/401k-Withdrawals/