Taking money out of your 401k before age 58.5 should really be the last option. But if you really need it you have to do it. The penalties are ten percent of what you take out early. Plus whatever you take out early will be taxed as normal income on next years taxes. So it's kind of like taxing you twice almost. They get the ten percent but then they get another few percent in the taxes. However their are exceptions to the rules if you use the money for some different things then you won't have to pay the penalties. The exceptions are to buy a house, you paid for medical expenses exceeding 7.5 percent of your gross income, you were permanently and totally disabled,you were unemployed and paid for health insurance, or you paid college tuition for yourself or a family member. So, if the reason you want to take out the money falls into one of those categories then you won't have to pay penalties. Good luck to you.

Unless you qualify for a hardship exemption, the IRS slaps an extra 10% penalty on early 401k withdrawals. This is on top of the regular income tax rate you're responsible for paying. Don't forget about state taxes too, if applicable.

Only take a 401k withdrawal if you're under retirement age as a last resort. There are a few special conditions under which you can withdraw the money without the added penalty. First time home buyers, saving yourself from eviction, or paying down medical debt all qualifies for penalty free withdrawals. However, even in these cases, the money will still be taxed at your regular Federal and state income tax rates.

Always look to other sources for money if you really need it first. Savings, low interest loans from relatives or credit unions, and even small personal lines of credit may be preferable to a 401k withdrawal. Use them to your advantage.