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

You can withdraw from your 401(k) while working, but most withdrawals before age 59½ trigger a 10% penalty plus income tax

A standard 401(k) withdrawal after you turn 59½ and separate from your employer is straightforward: you contact your plan administrator, request a distribution, and receive a check or direct deposit. The amount is taxed as ordinary income in the year you withdraw it. Before that age, the same tax applies, but the IRS adds a 10% early withdrawal penalty on top—unless you meet a narrow set of exceptions.

If you still work for the employer sponsoring your plan, you may not be able to withdraw at all until you leave the job, retire, or reach 59½, depending on what your plan document allows. Once you do separate from service, the withdrawal process is the same: contact the plan, request the amount, and receive it within a few business days to a few weeks depending on the administrator.

Key Takeaways

• Withdrawals after age 59½ are taxed as ordinary income but carry no penalty, and you can take them while still employed if your plan allows.
• Withdrawals before age 59½ are subject to a 10% penalty plus income tax, unless you meet an IRS exception such as disability, medical expenses over 7.5% of income, or a SEPP arrangement.
• If you leave your job, you can roll your 401(k) into an IRA or a new employer's plan to avoid immediate tax and keep the money growing tax-deferred.
• Roth 401(k) contributions can be withdrawn tax-free at any time, but earnings on those contributions follow the same age and penalty rules as traditional 401(k)s.
• Required Minimum Distributions begin at age 73 (as of 2023) and must be taken annually or you face a 25% penalty on the amount not withdrawn.

Withdrawals after 59½ with no penalty

Once you reach 59½, you can withdraw from your 401(k) without the 10% early withdrawal penalty. The money is still taxed as ordinary income in the year you take it, but there is no additional penalty. If you are still working, whether you can actually withdraw depends on your plan's rules—some plans allow "in-service distributions" at 59½ even if you have not left the job, while others do not.

To find out what your plan allows, check your Summary Plan Description (SPD), a document your employer is required to give you. If you cannot find it, ask your HR or benefits department. Once you confirm you can withdraw, contact your plan administrator (the company managing the investments—often Fidelity, Vanguard, Schwab, or your employer's chosen provider) and request a distribution. You will need to specify the amount and whether you want it deposited to your bank account or mailed as a check.

The administrator will withhold federal income tax from the distribution—usually 20% if you take a lump sum, though you can request a different withholding rate on Form W-4P. State income tax may also be withheld depending on where you live. The net amount reaches your account within a few business days to two weeks.

Early withdrawals before 59½ and the 10% penalty

If you withdraw before 59½, the IRS charges a 10% penalty on the amount withdrawn, in addition to ordinary income tax. A $50,000 withdrawal at age 45 would be taxed as $50,000 of income plus a $5,000 penalty. Both are due when you file your tax return for that year.

However, the IRS carves out several exceptions where the penalty does not apply. You can withdraw without penalty if you are permanently and totally disabled, if you are paying unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, or if you are taking distributions as part of a Substantially Equal Periodic Payment (SEPP) plan—a series of equal withdrawals calculated using IRS life-expectancy tables that must continue for five years or until you turn 59½, whichever is longer.

Other exceptions include withdrawals to pay a may have access to domestic relations order (a court order dividing retirement assets in a divorce), withdrawals by a beneficiary after the account holder's death, and in some cases, withdrawals to pay health insurance premiums after job loss. The income tax still applies in all these cases; only the 10% penalty is waived.

Rolling over to an IRA or new employer plan

When you leave your job, you do not have to withdraw your 401(k) at all. Instead, you can roll it into a Traditional IRA or into your new employer's 401(k) plan if that plan accepts rollovers. A rollover moves the money tax-free and penalty-free, and it continues to grow tax-deferred.

A direct rollover is the cleanest route: your old plan administrator sends the money directly to the new IRA or plan. You never touch the money, so there is no withholding and no tax event. To set this up, contact your new IRA provider or new employer's plan administrator and ask for rollover instructions. They will tell you where to have the old plan send the funds.

If you take an indirect rollover instead—the old plan sends you a check—you have 60 days to deposit it into the new account. The plan will withhold 20% federal tax, so if you want to roll over the full amount, you must cover that 20% from your own funds. If you miss the 60-day deadline, the full amount becomes a taxable withdrawal and the 10% penalty applies if you are under 59½.

Roth 401(k) contributions versus earnings

If your employer offers a Roth 401(k), contributions you made to it can be withdrawn at any time, tax-free and penalty-free. The earnings those contributions generated, however, follow the same rules as a traditional 401(k): they are tax-free and penalty-free only after 59½ and if the account has been held for at least five tax years.

This distinction matters if you need cash before 59½. You can pull out your contributions without consequence, but withdrawing the earnings triggers both income tax and the 10% penalty unless you meet an exception. Your plan statement should show how much is contributions and how much is earnings, but if it does not, ask your plan administrator to break it down.

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, calculated using your age and account balance. This is called a Required Minimum Distribution (RMD). If you do not take it, the IRS charges a 25% penalty on the shortfall (reduced to 10% if you correct it within two years).

The calculation is straightforward: divide your account balance on December 31 of the prior year by a life-expectancy factor published by the IRS. Your plan administrator can calculate this for you, or you can use the IRS worksheet. You must take the first RMD by April 1 of the year after you turn 73, then take subsequent distributions by December 31 each year.

If you are still working and your plan allows it, you may be able to delay RMDs until you actually retire, even after 73. This is called the "still-working exception" and applies only if you do not own more than 5% of the company. Check your plan document or ask your HR department whether your plan allows this.

Loans from your 401(k) as an alternative

Many 401(k) plans allow you to borrow from your own balance instead of withdrawing. A loan is not a distribution, so it avoids taxes and penalties. You typically can borrow up to 50% of your vested balance or $50,000, whichever is less, and you repay it through payroll deductions over five years (or longer if the loan is for a home purchase).

The catch is that if you leave your job before the loan is repaid, the outstanding balance is usually treated as a taxable withdrawal. If you are under 59½, the 10% penalty applies to the unpaid amount. For this reason, a loan makes sense only if you are confident you will stay employed long enough to repay it or if you can pay it back immediately when you leave.

Frequently Asked Questions

What happens to my 401(k) if I quit my job?

You keep the money in the 401(k) and can leave it there, roll it to an IRA, roll it to a new employer's plan, or withdraw it. If you withdraw before 59½, you owe income tax plus a 10% penalty unless an exception applies. Leaving it in place is often the simplest option if you do not need the money.

Can I withdraw just part of my 401(k)?

Yes. You can request a partial withdrawal of any amount (subject to any plan minimums). The amount you withdraw is taxed as income and subject to the 10% penalty if you are under 59½ and do not meet an exception. The rest stays in the account and continues to grow tax-deferred.

Do I have to pay taxes on a 401(k) withdrawal?

Yes, unless it is a rollover to another retirement account. Withdrawals are taxed as ordinary income in the year you take them. If you are under 59½ and do not meet an exception, you also owe a 10% penalty. Your plan will withhold federal tax (usually 20% for lump sums), but you may owe more or less when you file your return depending on your total income.

What is the difference between a withdrawal and a rollover?

A withdrawal puts money in your pocket and triggers taxes and possibly penalties. A rollover moves money from one retirement account to another without taxes or penalties, and it stays tax-deferred. Rollovers are usually the better choice if you do not need the cash immediately.

Can I undo a 401(k) withdrawal?

No. Once you withdraw, the money is yours and the tax is owed. You cannot put it back into the 401(k) to reverse the tax. If you rolled over to an IRA and change your mind, you can roll it back to a 401(k) if the new plan accepts it, but this must happen within 60 days of the rollover.