When can an individual withdraw from a 401K and not be subject to the 10% penalty.
A woman was terminated from her job last year and took all the funds to live on. She was 55 last year.
How are the 401K rules different from the IRA rules or are they basically the same? Any suggestions on where to find this info on the web so I can read up on them.

Thanks for any help.

The 10% penalty on qualified plans is imposed under the authority of Internal Revenue Code section 72(t). That section also contains the allowable exceptions to the penalty, one of which is separation from service in or after the year in which the employee attains age 55.

As for whether 401(K) rules are different than IRA rules, the exception to the 10% penalty when a distribution is received from a qualified plan after the employee separated from service during or after the calendar year in which they attained 55 does not apply to distributions from IRAs (Internal Revenue Code Section 72(t)(3)(A)).

This is a pretty straightforward issue, as covered by previous responders. I would just add that you want to make sure that the 1099-R is coded correctly. I don't have the form in front of me but if I recall correctly, the distribution code should be 2, which means Early Distribution, but subject to an exception from the penalty. In this case the exception is age 55 and separated from service.