What Age Can You Take Money Out of a 401k?

Find out when you can — and cannot — safely make a 401k withdrawal.


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After years — even decades — of making deposits into your 401k retirement plan, you might be thinking about finally taking out some money. Turning 59.5 marks a critical 401k withdrawal age. If you make a 401k withdrawal before age 59.5, you run the risk of the IRS slapping you with a 10 percent early withdrawal penalty — and that's in addition to the income tax you'll also owe.

After age 59.5, you no longer need to worry about this penalty; however, you also can avoid the 10 percent penalty before age 59.5 if your reason for withdrawing the money qualifies under certain 401k withdrawal rules. Learn how you can make an affordable early 401k withdrawal.

How the Early Withdrawal Penalty Works
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How the Early Withdrawal Penalty Works

Making deposits into a 401k plan is primarily a way to defer income tax, not avoid it. Once you take out the money that you deposited into your 401k plan, you'll have to pay ordinary income tax on the funds. The IRS imposes a 10 percent early withdrawal penalty to discourage withdrawals before you retire.

For example, if you withdraw $25,000 from your 401k, you must include the withdrawn amount as part of your gross income on your tax return. The amount of ordinary income tax you'll incur for taking the $25,000 will depend on your tax bracket. If you take this withdrawal before age 59.5, you'll also have to pay an additional $2,500 as part of a 10 percent early withdrawal penalty.

Related: What You Need to Know About Borrowing From Your 401k

Exemptions From the Early Withdrawal Penalty
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Exemptions From the Early Withdrawal Penalty

Certain life events qualify for a penalty-free 401k withdrawal. Some of these events are tied to your age or apply only to specific groups of people. Here are circumstances under which you can be exempt from the early withdrawal penalty:

  • If you participate in a 401k plan, you can withdraw money from that plan without penalty if you stop working for the company beginning in the year you reach age 55.
  • Public safety workers — such as firefighters — who leave their employment at age 50 or later can take 401k withdrawals without penalty.
  • If you become totally and permanently disabled as defined by the IRS at any age, you can take penalty-free 401k distributions.

Before using these exemptions, consider the tax consequences if you're still working and dip into retirement funds early. Even though the 10 percent penalty doesn't apply, you might be withdrawing the money while paying income tax in a higher tax bracket than you will after you stop working. You don't want to lose one of the primary benefits of a 401k retirement — paying a lower tax rate on money you've previously earned.

How Are 401k Loans Treated?
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How Are 401k Loans Treated?

If your 401k plan allows it, you can take money out of your 401k plan earlier than age 59.5. You can take this withdrawal in the form of a loan without incurring the 10 percent early withdrawal penalty, but taking out a 401k loan comes with risks.

Most 401k loans are due within five years or upon leaving your employment. Unpaid loans or loans not paid according to their terms can result in additional income tax, as well as incurring the 10 percent early withdrawal penalty. Although it might be possible, taking money from your 401k plan as a loan runs the risk of upending your retirement plan.

Learn: 5 Reasons to Avoid 401k Loans

When Is It Safe to Take a 401k Plan Distribution?
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When Is It Safe to Take a 401k Plan Distribution?

Once you turn age 59.5, you can take 401k plan distributions without paying a penalty, but you still want to take smart 401k withdrawals, whether you're retiring early or not. If you're still working at age 59.5 and your income is sufficient, there's no requirement that you take 401k withdrawals. But this situation doesn't last indefinitely; after age 70.5, 401k distribution rules require you to take minimum distributions.

If you miss a required distribution, you will owe a 50 percent tax on that amount, according to the IRS. In some cases, you can avoid this penalty if you are age 70.5 but still work for the company associated with your 401k plan.

The company providing your 401k has the option to require all participants — even if they still work for the company — to take distributions by April 1 of the year after they reach age a 70.5. And any participant who is at least a 5 percent owner of the company maintaining the 401k plan must take a distribution by April 1 of the first year after the calendar year in which the participant reaches age 70.5.

Up Next: 6 Ways to Make Sure Retirement Savings Last

About the Author

Joe Stone is a freelance writer residing in the Washington D.C. area who has written professionally since 2005. His articles have been published in several online publications, covering many topics including small business, real estate, retirement, background investigations and legal process. He enjoys writing for a variety of reasons, one of which is to provide clarity to complex issues.