At the present time, the only way to withdraw money from your 401K without the 10 percent penalty is to show you are using the money to pay for medical insurance or expenses. You have to advise your administrator of the fund the reason you are making the withdrawral and ask them to note it on your file and future paperwork. If you are not doing that, you will be taxed, no matter what. We used monies from our account to cover expenses during unemployment and we will be taxed as well unless the rules change for this year, and they dont look like they will. Sorry.

The 401(k) distribution you're getting may be Colorado tax-exempt, it isn't federal tax exempt. You will still pay federal income tax on the amounts you receive. Since your distributions are set up as an annuity paid over your anticipated life, you are not subject to the early distribution penalty.

If you take additional funds out of the 401(k), they will be subject to both income tax and the penalty. Only by rolling the funds into another qualified retirement plan would you be able to avoid taxation entirely.

No way. Only if you die, your benefiticiary can withdraw the money without penalty. Under no other circumstances, you will always to tp pay taxes and penalty.

401(k) will be penalized heavily until you reach the age of 59 1/2. If you withdraw now your looking at around 40% taxes. I would not recommend taping into it before 59 1/2 unless your in a situation that you cannot afford to survive.