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

The basic rules for taking money out of your 401(k)

You can withdraw money from your 401(k) in three main ways: after you reach age 59½, through a loan against your balance, or in limited hardship situations before that age. The route you take determines whether you pay taxes, penalties, or both. Most withdrawals before 59½ trigger a 10% early withdrawal penalty on top of ordinary income tax, which can cut your withdrawal by 30% to 40% depending on your tax bracket.

Your employer's plan document sets the specific rules for your account — not all plans allow loans, and not all recognize the same hardship reasons. Before you contact your plan administrator, know that the IRS has strict definitions for what counts as a hardship withdrawal, and your employer can be more restrictive than the IRS allows.

Key Takeaways

• Withdrawals after age 59½ are taxed as ordinary income but avoid the 10% early withdrawal penalty.
• Withdrawals before 59½ typically trigger both income tax and a 10% penalty unless you may have access to for a hardship exception or loan.
• A 401(k) loan lets you borrow against your own balance and repay yourself with interest, but you must repay it or face taxes and penalties.
• Hardship withdrawals are limited to specific situations like medical bills, home purchase, or eviction prevention, and your plan must offer them.
• Once you turn 73, you must take required minimum distributions (RMDs) each year or face a 25% penalty on the amount you should have withdrawn.

Withdrawals after age 59½ with no penalty

Once you reach 59½, you can withdraw any amount from your 401(k) without the 10% early withdrawal penalty. You still owe ordinary income tax on the withdrawal — the money comes out of your paycheck pre-tax, so the IRS treats it as income when you take it out. If you withdraw $10,000, you will owe federal income tax on that $10,000 at your current tax rate, which varies by your total income and filing status.

You do not have to withdraw anything at 59½. Many people keep working and leave the money invested. The account continues to grow tax-deferred until you need it or until age 73, when the IRS requires you to start taking money out.

Your plan administrator can walk you through the withdrawal process, which usually involves filling out a form and choosing whether to have taxes withheld from the payment or pay them separately when you file. Some plans offer a direct transfer to a bank account; others mail a check.

401(k) loans: borrowing from yourself

If your plan allows loans, you can borrow up to 50% of your vested balance (or $69,000, whichever is less, as of 2024 — this limit changes yearly). You repay the loan to yourself with interest, typically at a rate your plan sets, often 1% to 2% above the prime rate. The interest goes back into your account, not to a bank.

A loan has real advantages over a withdrawal: you avoid taxes and penalties, and you keep the money invested while you repay. The catch is that if you leave your job, most plans require you to repay the full loan within 60 to 90 days or the unpaid balance becomes a taxable withdrawal subject to the 10% penalty if you are under 59½.

Loans also reduce the amount of money compounding in your retirement account. If you borrow $20,000 and take five years to repay it, that $20,000 is not growing for those five years, which costs you in long-term retirement savings. Ask your plan administrator for the loan terms, repayment schedule, and what happens if you change jobs.

Hardship withdrawals for specific situations

The IRS allows hardship withdrawals for a narrow list of reasons: unreimbursed medical expenses, home purchase (first-time buyers only), education costs, preventing eviction or foreclosure, burial or funeral expenses, and certain repairs to a primary home. Your plan must offer hardship withdrawals — not all do — and the plan can add its own restrictions on top of IRS rules.

To may have access to, you must show that you have no other way to pay for the expense and that you have taken other steps to cover it (like borrowing from family or taking a loan against your home). You typically need documentation: medical bills, a purchase agreement, tuition invoices, an eviction notice, or a repair estimate. Your plan administrator will tell you what counts as proof.

Even if you may have access to, a hardship withdrawal is still taxable as ordinary income, and you still owe the 10% penalty. The only advantage is that you do not have to wait until 59½ to access the money. The withdrawal reduces your retirement savings permanently, so this route makes sense only when the hardship is real and you have exhausted other options.

Substantially equal periodic payments (SEPP)

If you are under 59½ and need regular income from your 401(k), you can set up substantially equal periodic payments, known as SEPP or a 72(t) distribution (named after the IRS rule that allows it). This method lets you withdraw money without the 10% penalty, but only if you follow strict rules: you must take payments at least annually, the amount is calculated using an IRS formula based on your life expectancy, and you must continue for at least five years or until you turn 59½, whichever is longer.

If you stop the payments early or change the amount, the IRS recalculates and charges you the 10% penalty retroactively on all prior withdrawals, plus interest. This is a rigid tool that works only if you can commit to the payment schedule. Talk to a tax professional before setting up SEPP, because the calculation is complex and a mistake can be costly.

Required minimum distributions starting at age 73

Once you turn 73, the IRS requires you to withdraw a minimum amount each year, called a required minimum distribution or RMD. The amount is calculated by dividing your account balance on December 31 of the prior year by a life expectancy factor the IRS publishes. For someone age 73, the factor is roughly 26.5, so a $500,000 balance would require an RMD of about $18,868 for that year.

You must take your first RMD by April 1 of the year after you turn 73. After that, you take it by December 31 each year. If you miss the important date or withdraw less than required, the IRS charges a 25% penalty on the shortfall (reduced to 10% if you correct it within two years). Your plan administrator can calculate the RMD for you, but it is your responsibility to take it.

If you are still working and do not own more than 5% of the company, you may be able to delay RMDs from your current employer's plan until you retire. This rule does not explore to IRAs or to plans at former employers. Check with your plan administrator about the "still-working exception" if this applies to you.

Taxes and withholding on your withdrawal

When you take a withdrawal, your plan can withhold federal income tax automatically — usually 10% to 20% of the amount, depending on what you choose. Withholding is not the same as paying your full tax bill. If you are in the 24% tax bracket and withdraw $10,000 with 10% withheld, you will owe an additional $1,400 when you file your tax return.

You can choose to have no tax withheld and pay the full amount when you file, but this requires discipline — you have to set the money aside. Some people prefer to have extra withheld to avoid a surprise bill. Your plan will give you a form to specify the withholding amount when you request the withdrawal.

Withdrawals are reported to the IRS on Form 1099-R, which you will receive by January 31 of the following year. Keep this form with your tax records. If you roll the withdrawal into an IRA within 60 days, you may be able to avoid taxes on part or all of it — this is called a rollover and has its own rules.

Frequently Asked Questions

What happens if I withdraw money before age 59½?

You owe ordinary income tax on the full amount plus a 10% early withdrawal penalty, unless you may have access to for a hardship exception, set up SEPP, or take a loan instead. For a $10,000 withdrawal in the 22% tax bracket, you would owe roughly $3,200 in taxes and penalties combined, leaving you $6,800.

Can I put money back into my 401(k) after I withdraw it?

No, not directly. Once you withdraw money, it is gone from the account. If you take a loan and repay it, that is different — the repayment goes back in. If you withdraw and want to move the money back, you can roll it into an IRA or another 401(k) within 60 days, but this is a rollover, not a reversal.

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

Yes. Once you turn 73, the IRS requires you to withdraw the calculated amount each year, whether you need it or not. You can withdraw more than the minimum, but not less. The penalty for missing an RMD is steep — 25% of the shortfall — so set a calendar reminder for December 31.

What is the difference between a withdrawal and a rollover?

A withdrawal is money you take out and keep. A rollover is money you move from one retirement account to another (like from a 401(k) to an IRA) within 60 days, which avoids taxes and penalties. If you miss the 60-day window, it becomes a taxable withdrawal.

Can my employer stop me from taking a withdrawal?

Your employer cannot stop you from withdrawing after 59½, but they can restrict hardship withdrawals, loans, or SEPP based on the plan document. Some plans also have a waiting period before you can take a withdrawal after you start the job. Read your plan summary or ask your HR department what your specific plan allows.