I am elegible to retire March of 2016. I will be 54. If I leave my 401K with my employer that I retired from can I take proceeds out of my 401K without the 10% penalty or do I have to wait until age 55?

If you left your employer " in or after the year you turn 55", you MAY not have to pay the 10% penalty. However, you retire at 54 you will not qualify and probably need to wait till 59 1/2. Consult a tax professional for all the nuances of the law.

Contact your plan administrator for the exact terms, and condition.

There are actually two ways to avoid the penalty:

1. If you wait to quit your job until January 2017 or later (the calendar year in which you turn 55), you can take withdrawals after that without penalty, as ma0164 described.

2. You can start a plan of taking a series of "substantially equal" withdrawals even prior to age 55 without penalty, under what is known as a "section 72(t)" series of withdrawals. The way it works is you start taking withdrawals based on your life expectancy, so like an annuity you get a steady income. The downside is that you don't have the option of varying the amount withdrawn each year. If you are set on retiring prior to 2017 I suggest you talk to your plan administrator about this option.

Of course you would owe income taxes on the withdrawals - you can't avoid that. One other point: these two provisions for taking penalty-free withdrawals only applies to 401(k) accounts - they do NOT apply to IRAs. So if you decide to go with either of these ideas do not roll your 401(k) to an IRA.