Source: via Flickr.

When it came to retirement planning three decades ago few people ever thought that employer-sponsored 401(k) plans would replace pensions as the primary retirement tool of Americans, but the most recent statistics show that this is most decisively the case.

According to the American Benefits Council, there were 638,390 defined contribution retirement plans in the U.S. as of 2010, of which 513,000 were 401(k) plans. In total, nearly 89 million workers were defined contribution plan participants, with 73.7 million of those Americans being active participants. Furthermore, the total asset value of these more than 600,000 defined contribution plans was $4.5 trillion as of the second quarter of 2013!

Withdraw from a 401(k) and it could cost you

Of course, the secret to the success of the 401(k) is that it requires the employee to invest his or her money over the long-term, preferably starting as early in one's work career as possible so as to maximize the benefits of compounding gains and time. By imposing an early 401(k) withdrawal penalty of 10% -- an early withdrawal is considered any non-qualified withdrawal before age 59 1/2 – on top of standard income taxes (and perhaps even state taxes), the government has certainly incentivized workers to look elsewhere, such as an emergency fund or their own investment portfolio, before digging into their 401(k) plan for money.

But, this doesn't mean workers don't have ways to access their cash. Some, as you might imagine, can cost a pretty penny, while a handful of others can actually give you access to your 401(k) money before the age of 59 1/2 without having to fork over the 10% early withdrawal penalty.

The aforementioned costly method allows you to access your retirement cash and make a 401(k) withdrawal if you can claim a financial hardship. Let it be known, though, that "being broke" isn't grounds for claiming a financial hardship. Some of the examples that will allow an employee to withdraw money from their 401(k) include:

  • Purchasing a primary home
  • For funeral expenses
  • Payment of college tuition and expenses over a 12-month period
  • Certain unreimbursed medical expenses for you, your spouse, or your dependents

Source: via Flickr.

Keep in mind that financial hardships aren't easy to qualify for and you're almost certain to pay both the 10% early withdrawal penalty as well as regular federal taxes on the money you take out. This is why retirement plans like a 401(k) are often suggested as a last resort for getting funds prior to turning 59 1/2 years old.

Furthermore, taking money out for financial hardship purposes disqualifies you from reinvesting that same money back into your 401(k), and many employers may not allow you to make additional 401(k) contributions for up to six months after your withdrawal (what's known as a self-certification hardship withdrawal). Not to mention, employers are under no obligation to even offer a financial hardship withdrawal option to their employees. Remember, even taking a few thousand dollars out of your 401(k) can have big financial implications over a lifetime.

Six ways to make a penalty-free 401(k) withdrawal

There are, however, six 401(k) withdrawal scenarios, should they be allowed by your employer, where you may be able to get your money while skirting around the 10% early withdrawal penalty. These exceptions include:

  • You become disabled
  • You're required by a court order to give money to your ex-spouse, a child, or a dependent
  • You're separated from your job (e.g., layoff, quitting, or early retirement) and have set up a plan to take out "substantially equal amounts" over the course of your life expectancy
  • You're in medical debt that equates to more than 7.5% of your adjusted gross income
  • You're separated from your job at age 55 or later
  • You take a 401(k) withdrawal loan

It should be noted that the first five options listed here will still require you to pay income taxes on your 401(k) withdrawal. However, should you qualify for one of these five exemptions you'll sidestep the 10% early withdrawal penalty.

Source: via Flickr.

The last way to get ahold of your retirement cash, a 401(k) withdrawal loan, can be a good way to avoid both income taxes and the 10% early withdrawal penalty so long as you pay the money back. Best of all, the interest you're paying is on your own money, so it's still beneficial to your nest egg. Like the other hardship withdrawals you'll first have to check with your employer to see if this is an option that's available to you.

Yet, one thing worth noting is that if you set up a 401(k) withdrawal loan with your employer and subsequently leave your job, the remaining balance of the loan must be quickly repaid otherwise you will be subjected to federal income taxes and the 10% early withdrawal penalty.

The key point here is that a 401(k) is designed to benefit you over the long run, so it's in your best interests not to withdraw this money before you're allowed to. However, if you have exhausted all other avenues to get cash, there may be some exceptions available to you which could help you get more of your cash up front.