4 Little-Known 401(k) Rules That Could Save You Thousands
Written by
Karen Doyle
Edited by
Rebekah Evans
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
For many workers, their 401(k) will be their largest source of income in retirement. You probably know about the contribution limits, employer match and other features of a 401(k) plan, but there are other rules that you may not be aware of. And some of these can save you thousands in retirement.
Here are four little-known 401(k) rules you should know about.
The Rule of 55
You probably know that you need to be 59 1/2 years old to take withdrawals from your 401(k) or IRA without incurring a 10% early withdrawal penalty. But there is an exception to this rule. According to the IRS, if you separate from service (for instance, you quit, are fired or are laid off) and you are age 55 or older, you can take withdrawals from your 401(k) without incurring the early withdrawal penalty. If you are a state public safety employee in a governmental defined benefit or defined contribution plan, you can take advantage of this rule as early as age 50.
Catch-Up Contributions
There is a limit to the amount you can contribute to your 401(k) plan each year, but that limit changes as you get older. In 2026, you can contribute up to $24,500 of pre-tax earnings to your 410(k). If you are over 50, however, you can contribute an additional $8,000 for a total of $32,500. If you are between ages 60 and 63, your catch-up contribution limit is even higher — it’s $11,250, for a total contribution limit of $35,750, per the IRS.
Contributing the maximum amount to your 401(k) does more than help you save for retirement. It also reduces your taxable income, which brings down your total tax burden while you’re still working. If you earn $100,000 and contribute $20,000 to your 401(k), you’ll only be taxed on $80,000 of income.
Roth Conversions
You can convert some of your 401(k) assets into a Roth IRA. You will have to pay taxes on the money you convert, but the money in your Roth IRA will grow tax-free and will not be taxed when you withdraw it. If you have a year or two where your income is lower than usual and your tax bracket is lower than usual, that would be the time to take advantage of this strategy.
Loans
Some, but not all, 401(k) plans allow you to take a loan against your account if you need to. You then pay back the loan with interest, with payments that are deducted from your paycheck. So you’re essentially paying yourself for the loan. This rule should be reserved for emergencies, because any money you take out will not be growing. Plus, if you leave your job before the loan is paid back, you’ll be taxed on the outstanding balance at your regular income tax rate, as it will be treated like a withdrawal. But if you find yourself in a situation where only the funds in your 401(k) can bail you out, a loan is usually better than a withdrawal.
To get the most out of your 401(k), be sure you understand your plan. Different plans have different rules and understanding them can save you a lot of money while maximizing your retirement income. Read your plan documents carefully and consult with your human resources or benefits department if you have questions.
More From GOBankingRates
