Can You Take a 401(k) Withdrawal at 55?

Age 55 Access Is Possible, and Even at Age 50 for Some Workers

Woman who doesn't know if she can take money from her 401k or know
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You just turned 55, and you want to withdraw money from your 401(k) plan. Are you allowed to? Maybe.

It depends on whether you are still working for the company where your 401(k) plan is at; if you’re no longer working for that company, then it depends on how old you were when you left employment there. I cover these various circumstances below.

Still Working for the Company

Most 401(k) plans do not allow "regular withdrawals" at age 55 while you are still working for the company. By regular withdrawal, I mean a withdrawal that is not subject to penalties and does not require you to qualify based on special circumstances.

Instead of a regular withdrawal, you may be able to take a 401(k) loan, or qualify for a hardship withdrawal - if your 401(k) plan allows these options. Not all 401(k) plans are required to offer loans or hardship withdrawals.

You can also check with your plan administrator to see if they have a special provision that allows for something called an in-service distribution. 

No Longer Working for the Company

If you want to take money out of an old 401(k) plan – meaning a plan from an employer whom you no longer work for – the rules are a little different.

If you left your previous employer during or after the year you reached the age of 55; then you can take a withdrawal from the 401(k) plan. This withdrawal will be considered taxable income, but it will not be subject to the early withdrawal penalty tax. It applies even if you are not yet age 59 ½. It applies if you have left your money in the 401(k) plan. For qualified public safety employees this provision applies at age 50, rather than 55. See IRS Retirement Topics on Early Distributions, and scroll down to the Separation form Service section and footnotes at the bottom for verification.

If you rolled your old 401(k) plan to an IRA, this early-access provision does not apply. If you take a regular withdrawal from an IRA before age 59 ½, it is subject to income taxes plus an early withdrawal penalty tax.

What If You Left Your Previous Employer Before Age 55?

If you left your previous employer prior to the year, you reached age 55 (age 50 for public safety employees as defined by the IRS), but now you are over 55, sorry, the special age 55 withdrawal provision does not apply. Any withdrawals you take will be subject to the penalty tax unless you can roll your 401(k) plan to an IRA and qualify for an exception to the penalty.

Planning Opportunities

401(k) money is creditor protected. You will void this protection by cashing in a 401(k) plan early. If you are in financial trouble, cashing in a 401(k) plan early may be the worst thing to do.

If you are retiring early (before age 60 for example), in some cases, it can make sense to leave money in a 401(k) plan until you reach age 59 ½. In this way, you can take withdrawals if you need to.

If you could retire at age 54, it might make sense to wait until the year you reach age 55. This way you have more access to your 401(k) money and can take withdrawals that are not subject to an early withdrawal penalty tax.

Inherited 401(k)s

If you are a beneficiary and inherited, a 401(k) plan the rules above do not apply. The rules that apply to you will depend on whether you were a spouse, or non-spouse, and the age at death of the 401(k) owner.