The rules regarding access to your 401(k) account without penalties vary depending on different ages. The younger you are, the more options you have available. This is especially true if you have not yet retired. It can be frustrating if you need the money now for non-retirement purposes, but the idea of any retirement plan is to ensure you have income when you retire.
Withdrawing Money Before Age 55
You have two options if you are under 55 and still working for the company that manages your 401(k) plan. This assumes that these options are available by your employer.
You can take a 401(k) loan if you need access to the money, or you can take a hardship withdrawal, but you can only do this from a 401(k) account that is currently held by your employer. You cannot take loans from old 401(k) accounts.
You can roll over the funds into an IRA account or a 401(k) plan from another employer if you no longer work for the company, but those plans must accept these types of rollovers.
It’s best to think twice before withdrawing money because you will lose the valuable creditor protection that remains in place while keeping funds in your 401(k) plan at work. You may also be subject to a tax penalty, depending on the reason for the withdrawal and your age.
Withdrawing Money Between Ages 55 and 59.5
Most 401(k) plans allow withdrawals without penalties starting at age 55. You must have left your job in the year you turn 55 to use this option. You must leave your money in the 401(k) plan after leaving your job to access it without penalties, but there are some exceptions to this rule. These options make money available at age 50 for many law enforcement officers, firefighters, and emergency technicians.
Make sure you understand the rules regarding age requirements for penalty-free withdrawals. The age 55 rule will not apply if you retired in the year before you turned 55, and your withdrawal will be subject to a 10% early withdrawal tax in that case.
The retirement age rule for those 55 and older will not apply if you rolled over your 401(k) plan into an IRA account.
Withdrawing Money From Age 59.5 to Age 72
You can access your funds at age 59.5 without paying an early withdrawal penalty if you have retired and finished working after turning 55. You must still have funds in your plan to do this, and the rules are the same if you rolled over your 401(k) plan funds into an IRA. Age 59.5 is the earliest you can withdraw money from an IRA account without incurring a penalty.
You can access funds from an old 401(k) plan after you reach age 59.5 even if you have not retired yet. The best idea for previous employer 401(k) accounts is to roll them over when you leave the job. You will not face penalties if you withdraw from your old accounts if you are at least 59.5 years old. But you should check the rules for withdrawing money from your 401(k) plan if you are still at the workplace.
Check with your 401(k) plan administrator to see if your plan allows what is referred to as “in-service distribution” when you reach age 59.5. Some 401(k) plans allow this, but others do not.
Limits
Required Minimum Distributions
Required minimum distributions (RMDs) begin at age 72, starting in 2022. You must start taking distributions from all your tax-deferred retirement plans, such as IRAs and 401(k)s, when you reach this age. You must take your first RMD by April 1 of the year following the year you turn 72 (70.5 if you turned 70 before July 1, 2019).
Your plan may offer an exception to the mandatory distribution rules if you are still working for the company that manages your 401(k) plan, and if you are not the employer. Check with your plan administrator to see if the company allows an exception to the required minimum distribution rules if you are still employed at age 72.
Frequently Asked Questions (FAQs)
When can I withdraw money from my 401(k) account without penalty?
You can withdraw money from your 401(k) account without penalty at age 59.5, or even earlier for certain qualifying purposes. This is the limit set by federal law, but remember that your situation may be complicated if you continue to work in your sixties. Check with your employer to see if you are allowed to withdraw money from your 401(k) account while still employed.
How can you withdraw money from your 401(k) account after reaching age 59.5?
Withdrawing money from your 401(k) account in retirement is the same process as withdrawing money from any other type of account. You can simply request a withdrawal from the institution that holds the account. You may be able to withdraw the money in the form of a check, or you can transfer the funds to a bank account.
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Sources:
IRS. “401(k) Resource Guide – Plan Participants – General Distribution Rules.”
IRS. “Retirement Topics – Termination of Employment.”
IRS. “Retirement Topics – Exceptions to Tax on Early Distributions.”
IRS. “Retirement Topics – Hardship Distributions.”
IRS. “Topic No. 558 Additional Tax on Early Distributions From Retirement Plans Other Than IRAs.”
IRS. “Tax Time Guide: IRS Reminds Taxpayers of Recent Changes to Retirement Plans.”
Source: https://www.thebalancemoney.com/what-age-can-funds-be-withdrawn-from-401k-2388807
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