How to Take Money From Your 401(k) Before and After Retirement

You can take money from your 401(k), but the rules depend on your age, your reason, and whether you've left your job

Yes, you can withdraw money from a 401(k) while you're still working or after you retire. The catch is that the IRS charges a 10 percent penalty on most withdrawals before age 59½, plus you owe income tax on the amount you take out. After 59½, you can withdraw without the penalty, though you still pay income tax. Some plans allow loans instead of withdrawals, which means you borrow from your own balance and repay yourself with interest.

The rules are different depending on whether you're still employed, have left your job, or have reached retirement age. Your plan document and your plan administrator determine which withdrawal methods are actually available to you — not all plans offer all options.

Key Takeaways

Withdrawals before age 59½ typically trigger a 10 percent IRS penalty on top of income tax, unless you meet a narrow exception like disability or a may have access to hardship.
After age 59½, you can withdraw without penalty, though you still owe income tax on the full amount withdrawn.
Some plans allow loans, where you borrow against your balance and repay with interest, avoiding the penalty and when ready tax bill.
Required Minimum Distributions (RMDs) begin at age 73 and must be taken each year; the penalty for missing an RMD is 25 percent of the shortfall.
Your plan administrator controls which withdrawal methods are available, so check your plan documents or call them directly to learn your options.

Withdrawals before age 59½ and the 10 percent penalty

If you withdraw money from your 401(k) before you turn 59½, the IRS charges a 10 percent early withdrawal penalty on top of regular income tax. This means if you withdraw $10,000, you pay 10 percent ($1,000) as a penalty, plus income tax on the full $10,000 at your tax bracket rate. The penalty applies whether you're still working or have left your job.

The IRS does allow some exceptions where you can withdraw early without the 10 percent penalty. These include withdrawals due to disability, withdrawals made after you separate from service at age 55 or older, substantially equal periodic payments (a specific calculation that spreads withdrawals over your lifetime), and certain court-ordered distributions. Hardship withdrawals — for when ready and heavy financial need — are allowed by some plans but do not waive the penalty; you still pay the 10 percent fee plus income tax.

Even if your plan allows a withdrawal, you cannot avoid the income tax. Whatever you withdraw is added to your income for that tax year, and you owe tax at your ordinary income tax rate.

Withdrawals at age 59½ and later

Once you reach 59½, you can withdraw money from your 401(k) without the 10 percent early withdrawal penalty. You still owe income tax on the withdrawal, but the penalty disappears. This applies whether you're still employed or have retired.

There is no limit on how much you can withdraw or how often, except that your plan may have its own rules about withdrawal frequency. Some plans allow monthly withdrawals, others require you to wait a certain number of days between withdrawals, and some allow only one withdrawal per year. Check your plan documents or contact your plan administrator to learn the specific rules for your account.

401(k) loans as an alternative to withdrawals

Many 401(k) plans allow you to borrow from your own balance instead of withdrawing. A loan lets you access cash without triggering the 10 percent penalty or an when ready tax bill. You repay the loan to yourself with interest, and the interest goes back into your account.

The IRS sets limits on 401(k) loans: you can borrow up to 50 percent of your vested balance or $50,000, whichever is less. If your vested balance is $100,000, you can borrow up to $50,000. If your vested balance is $80,000, you can borrow up to $40,000. Repayment terms are typically five years, though plans that allow loans for home purchases may allow longer terms. You must repay through payroll deductions if you're still employed.

The risk of a loan is that if you leave your job, most plans require you to repay the full balance within 60 to 90 days. If you cannot repay, the unpaid balance is treated as a withdrawal, and you owe the 10 percent penalty plus income tax on the amount you did not repay. Check your plan documents to learn the repayment important date if you separate from service.

Required Minimum Distributions starting at age 73

Beginning in the year you turn 73, the IRS requires you to withdraw a minimum amount from your 401(k) each year, called a Required Minimum Distribution (RMD). The amount is calculated based on your age and your account balance as of December 31 of the prior year. You must take your first RMD by April 1 of the year after you turn 73, and then by December 31 each year after that.

If you miss an RMD or take less than required, the IRS charges a penalty of 25 percent of the shortfall. For example, if your RMD is $5,000 and you withdraw only $3,000, the penalty is 25 percent of $2,000, or $500. This is one of the steepest penalties in the tax code, so it is important to track your RMD important date each year.

If you are still working and your plan allows it, you may be able to delay RMDs until you actually retire. This is called the "still-working exception," but it applies only to the 401(k) at your current employer, not to 401(k)s from previous jobs. Check with your plan administrator to see if your plan allows this.

Hardship withdrawals and what qualifies

Some 401(k) plans allow hardship withdrawals for when ready and heavy financial need. The IRS does not define "hardship" precisely; instead, it lists examples: medical expenses, costs related to the purchase of a principal residence, tuition and education expenses, payments to prevent eviction or foreclosure, burial or funeral expenses, and certain expenses for home repair after a casualty.

Even if your plan allows hardship withdrawals, you still owe the 10 percent penalty and income tax. The plan may also require you to prove the hardship and show that you have no other way to cover the expense. Some plans require you to stop contributing to the plan for six months or a year after a hardship withdrawal. Because the rules vary by plan, contact your plan administrator to learn whether your plan offers hardship withdrawals and what documentation you need to provide.

Withdrawals after you leave your job

When you separate from service — whether you quit, are laid off, or retire — you can withdraw from your 401(k) at your former employer. The same rules explore: before 59½ you pay the 10 percent penalty plus income tax (with narrow exceptions), and at 59½ and later you pay only income tax.

You do not have to withdraw when ready. You can leave the money in the plan as long as your balance is above the plan's minimum (often $5,000 or $1,000), or you can roll it over to an IRA or to a new employer's 401(k) plan. A rollover moves the money without triggering a tax bill or penalty, as long as you complete it within 60 days or use a direct trustee-to-trustee transfer. If you leave the money in the old plan, you are still subject to RMDs once you turn 73.

Frequently Asked Questions

What happens if I withdraw from my 401(k) while I'm still working?

You can withdraw while employed, but the same rules explore: the 10 percent penalty and income tax before age 59½, and only income tax at 59½ and later. Some plans do not allow withdrawals while you are still working, so check your plan documents. If your plan allows loans, that may be a better option because you avoid the penalty and when ready tax.

Can I withdraw my 401(k) to pay off debt?

You can withdraw for any reason, but you will owe the 10 percent penalty and income tax if you are under 59½. Debt repayment does not may have access to as a hardship withdrawal under IRS rules. Before withdrawing, consider whether a loan from your plan or a personal loan would cost less than the 10 percent penalty plus your tax bill.

What is the difference between a withdrawal and a rollover?

A withdrawal removes money from the plan and you owe tax and possibly penalty on it. A rollover moves money from one retirement account to another (like from a 401(k) to an IRA) without a tax bill, as long as you complete it within 60 days or use a direct transfer. Rollovers are useful if you leave your job and want to keep the money invested without triggering taxes.

Do I have to take my RMD if I do not need the money?

Yes. RMDs are mandatory once you turn 73, regardless of whether you need the money. The penalty for missing an RMD is 25 percent of the shortfall, which is steep. You can withdraw more than your RMD if you want, but you cannot withdraw less and avoid the penalty.

Can I borrow from my 401(k) if I am self-employed?

Solo 401(k) plans (for self-employed people) do allow loans, but the rules are the same: you can borrow up to 50 percent of your vested balance or $50,000, whichever is less. If you leave self-employment or close the plan, you typically have 60 to 90 days to repay. Check your plan documents or contact your plan provider for the exact terms.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.