When Can I Withdraw Funds From My 401(k) Without Penalties?

Avoid penalties by knowing the age related rules

Can I withdraw from my 401(k) without a penalty? You can under age 55 only with a loan or hardship withdrawal, or by rolling it over into an IRA. You can between age 55 and 59 and a half only if you are retired and as long as you didn't retire before the year you turned 55. You can between age 59 and a half and age 72, but if you're still working you probably can't withdraw from your current employer's 401(k). And after age 72 you are required to take the minimum distributions.

Image by Catherine Song © The Balance 2020

Have a 401(k) retirement account? Wondering when and how you can start tapping into your tax-free savings? Different rules apply at different ages. The lower your age, the fewer your options, especially if you're not yet retired. This can be frustrating if you need the money for non-retirement expenses, but the idea of a 401(k) is to ensure you're financially solvent when you retire.

Withdrawing From Your 401(k) Under Age 55

If you're under age 55, and you still work for the company that manages your 401(k) plan, you'll have only two options (assuming the options are made available by your employer). To tap 401(k) funds, you'll need to either take a 401(k) loan or a hardship withdrawal.

If you're no longer employed by the company, you can roll the funds over to an IRA, or to another employer's 401(k) plan if applicable, and if their plan accepts these types of rollovers.

Think twice about cashing out: If you cash out your 401(k) you'll void valuable creditor protection that stays in place when you keep the funds in the plan.

Withdrawing Funds Between Age 55–59 1/2

Most 401(k) plans allow for penalty-free withdrawals at age 55. To use this 401(k) retirement age 55 provision your employment must have ended no earlier than the year in which you turn age 55, and you must leave your funds in the 401(k) plan to access them penalty-free. There are a few exceptions to this rule: For many police, firefighters and EMTs, this provision makes funds accessible as early as age 50, rather than 55.

Before tapping into your 401(k), be sure to review the rules governing this age-55 liquidity provision:

  1. If you retire the year prior to reaching age 55, the 401(k) retirement age 55 provision will not apply. Your withdrawal will be subject to a 10% early withdrawal penalty tax. For example, assume you retire at 54, thinking in one year you can access funds penalty-free. Nope, sorry. You needed to wait one more year to retire for that provision to apply.
  2. If you roll your 401(k) plan over to an IRA, the retirement age 55 provision will not apply. The earliest age at which you can withdraw funds from a traditional IRA account without penalty taxes is age 59 1/2.

From Age 59 1/2 to 72

Once you reach age 59 1/2, the rules change a bit, but access to your 401(k) funds at age 59 1/2 depends on whether you are still working or not.

Retired

If you are retired, terminated employment after reaching age 55, and still have funds in your 401(k) plan, you can access them at age 59 1/2 and pay no early withdrawal penalty tax. If you have rolled your 401(k) funds to an IRA, the rules are the same: Age 59 1/2 is the earliest you can withdraw funds from an IRA account and pay no early withdrawal penalty tax. 

Still Working

If you are still working, you can access funds from an old 401(k) plan once you reach age 59 1/2, but you may not have the same access to funds inside the 401(k) plan at the company for which you currently work.

Check with your 401(k) plan administrator to see if your plan allows what is called an “in-service” distribution at age 59 1/2. Some 401(k) plans allow this and others do not.

Mandatory 401(k) Distributions at Age 72

Age 72 is the age that required minimum distributions start as of 2020. At this age, in general, you must begin taking distributions from all your tax-deferred retirement plans (plans like IRAs and 401(k)s).

If you turned 70 1/2 before Jan. 1, 2020, the age for RMD is still 70 1/2. If you turned 70 1/2 on or after Jan. 1, 2020, your age for RMD is 72.

If you are still employed by the company that manages your 401(k) plan, you are not an owner, and you do not wish to take a distribution, your plan may offer an exception to these mandatory distributions. You will have to check with your plan administrator to see if they allow an exception to the required minimum distribution rules if you are still working at age 72.

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