The penalty is figured at tax time but there are situations where you can remove funds without a penalty. If your home is in foreclosure, you can take out funds without penalty (you still have to pay tax on the money). Health insurance premiums is another reason. Also, any unreimbursed medical expenses over 7.5% of your AGI can be taken out without penalty (and most likely little or no federal tax b/c of the deductibility of medical expenses). PLEASE talk to a tax professional before removing money from your 401(k). There are significant tax implications and there are often other solutions that are less costly. I'm confused as to why Fidelity won't allow you access to your accounts. It doesn't matter if you are an active employee or a terminated employee, you still have access to those funds. Maybe not to the account limits but it's your money. The only thing termination affects is your ability to roll it over into a self-directed IRA. You can't do that until they receive termination notice.