When Can I Take Money Out Of My 401k?
A common question that many Americans ask is ‘when can I take money out of my 401k?’ It’s not only a question that people approaching retirement ask but also a query raised by increasing numbers of cash strapped workers.
The simple answer to the question ‘when can I take money out of my 401k?’ is ‘at any time’. However, if you’re under the age of 59 ½ then you may end up paying penalties. Keep reading to find out the consequences if you want to withdraw from your 401k plan.
Taking money out of your 401k on retirement
The standard age for taking cash out of your 401k plan is 59 ½. So, if you are over that age then you can take your money out as dispersals and you’ll just pay standard income tax.
When you can take money out of your 401k early without penalty
There are other situations where you can withdraw cash from your 401k plan before the age of 59 ½ without paying a penalty. Such situations include:
- You become permanently disabled
- You die and the account is paid to your beneficiary/estate
- You make an allowable medical expense deduction (where your medical expenses exceed 7.5 per cent of your adjusted gross income)
- You’re separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turned 55 or later
- You have to pay a levy on the 401k plan itself
In these instances the normal income tax rules apply, but you won’t pay a penalty.
Taking money out of your 401k at other times
If you’re under the age of 59 ½ and you want to take money out of your 401k plan for any other reason, you will generally pay a 10% withdrawal penalty in addition to any income tax that is applicable.
CNN reports that ‘David Wray, president of the Profit Sharing/401(k) Council of America, said that people making hardship withdrawals could pay a penalty of up to 40 per cent, once state and federal taxes are added to the 10 per cent penalty.’
Other factors to consider if you want to take money out of a 401k
As well as the potential tax and penalty implications, there are other factors you should take into account before you take money out of your 401k.
Firstly, withdrawing money means that you will be sacrificing the benefit of an earlier 401k plan contribution and you will lose all the potential future investment growth of the money you withdraw.
Secondly, you can’t make up these contributions at a later date and so you may find you receive a smaller income in retirement than you had planned for. Finally, you will also be giving up excellent tax benefits (your contribution is tax deductible and the growth of your account is tax deferred).
So, if I want to withdraw some money from my 401k now (I am aged 38), I’ll have to pay the 10% penalty and any taxes that are due?
Corey – Thanks for your question. Yes, you will pay the 10% penalty and all taxes UNLESS your withdrawal is for one of the five reasons highlighted above (you’re permanently disabled etc).
hi i have 4998.49 in my 401 k and i want to take out two grand due to hardships in family and im 33 and live in ny how much will i be paying back for taking that out?
What age can I cash in my 401 K with out paying any penalties, and taxes?
my husband is 60 and it looks like it will take about a year to get on SSDisability, what will it cost us in Missouri to withdraw money to help get us through that year.
I need to cash out 2 small 401′s from companies I was laid-off from and I am 57, will I have to pay a penalty? It is going to the purchase of a retirement home.
I will be taking over caring for my 5 grandchildren and need the money from my 401k to start that … they will be coming from a different state and when I asked about taking the money I was told that was not a hardship and that I could not take it. Is this true?
Halena, I’m not the admin but I can answer your question. My understanding is you can take a loan from your 401k equal to half of the present balance. You won’t have to pay a penalty but you will have to pay the money back. Payback is ususally over 5 years and is handled through payroll deduction. Hope this helps.
I am going to be 55 i want to retire @ 55 can i cash out my 401 without penalty my 401k is not from the company. That i will retire from.
I plan to retire at 55 after 25 years of service with my current employer. I believe as long as I wait until 55 or later and retire from the company holding the plan I can take withdrawels with no penalties. Is this correct?
i am 50 yrs old- my company is getting away w/401 k plan- i have 147,000.00 in my account – how much penalty and tax do i have to pay if i withdraw now
My question is who put the penalty in place and why? We all know the anwer to this dont we?
My 401K plan said I can not take a withdrawl for any reason unless it meets the hardship requirements, and then I would be taxed with the penalties. They said there is no way to remove funds from a 401K unless it’s a loan, hardwhip withdrawl or you leave employment with the company.
And, they said even if my home is in forclosure, they can insist that I try to refinance first. You have to exhaust every other method of loans. I find it hard to believe that if it’s my money I can’t take it, even if I know the penalties. Can they do this?
I have almost 2000 in my 401k I am only 26 but I need to catch up on bills and my work is on lack of work right now so we are only doing 32 hours a week…. Can I get 1500 out of my 401 and how would I? Also, when they take that % out do they take it out of the money you are taking out or what is remaining? And I just filed bankruptcy and still waiting on being discharged will that affect anything???
There are several questions to ask before determining if a pre-retirement distribution is allowed. If you are still working for the company that sponsors your plan, your options are limited to what’s stated in the Plan Document. Not every plan allows loans, hardship withdrawals or distributions prior to age 59.5. Please consult your Summary Plan Description, your Benefits Administrator, or simply call the Customer Service number printed on your statements.
My husband will be 70 1/2 December 2012. He received forms on making his minimal withdrawal from a 401K plan. He is considering withdrawing it all, having at least 12% taxes withheld. Is there a tax rate benefit withdrawing in this year of 2012 vs 2013?
Why is it called a 401k, not a 401 A?
Hello, I am 33 yrs old, live in Texas and not currently working, but going to a private school. I would like to take money out from my 401K to help me until I am done with school. I have read that I would have to pay income tax plus 10% back. When and how is this money paid back? Thanks!
Where can I find info on what an “allowable” medical expense entails?
Do I have to pay the additional 10% tax penalty if the company was sold, and the new owners are not offering 401k?? I dont want to rollover to another plan just cash out and I am 57 years old, is this the same as the no penalty on age 55 for retirement, (which I am not doing). Will I just pay taxes on this as additional income??
Halena,
I have taken a couple of 401k loans due to hardship. I have paid off one so far, with interest but no penalty.
I am getting separated from my husband and giving me half of the 401K is in our separation agreement. Does this mean there is still a penalty?
i am 58 and want to take my 401k how much penalty do i have to pay
My husband just got laid off. He is 55. Can we take the money out now without paying a penalty
I have $3000 in my 401k. I took a loan for $1300 before applying for a hardship withdrawal. Now I am eligible for the remaining $1700 through the hardship the company is telling me I can not take the remaining balance. This was after they received all my documents to prove I am buying a home. Do some companies restrict the withdrawal through hardship even after having you take a loan first? And if not how do I dispute their late claim?
Im so sorry to hear about your hardships ….NOT!U wait till ur 60 or take the withdrawal from ur 401 k with huge penalties. ….The penalty fees go to my account
….insurance agent
I am on L1 Visa and would be working in US for 2 years. Once I return back from USA, would I be able to withdraw 401K amount? If so what would be the penalties?
I have $8,000+ in my 401 k I am recently facing some financial hardships . I thought I could take it all or some of it out , but my office manager told me I cant until 59 1/2 yrs of age !!! I KNOW I WILL TAKE A HIT WITH FEES , Is this legal?? I love where I work and dont want to leave but I need my money!! HELP PLZ
Raj,
WE take all 401k account from no-citizens as they have no rights after leaving the USA on and expired visa. Sorry and good luck.
My wife is 62 and on ssd..she has a 401k with the company she had worked for…about $40,000 in it and its been sitting there for years…going up and down with the market…can she draw that all out now..and if so would there be taxes or penalties?
I am 58 years old as of August 2nd. I have been on workman’s comp since Oct.1 of 2011 and don’t see myself going back to the company I was at. They have refused to take me back with medical restrictions. I had Surgery in Feb. 0f 2012 and am do to go back for evaluation in Feb of 2013. I need to take money out of my 401k not my IRA to help get by. Do you think I can qualify for no penalties, just the tax?
I’ve had three knee surgery’s and this last surgery might keep me from going back to my job. I’ve been off work over 6 months now and money is getting tight. Anyway I have 65,000 in my 401k and was wondering if I pull that money out now how much will I actually get. By the way I’m 33 not married and have no kids. Also was thinking about usin the 401k money to start my own business. Any advice would be appreciated. Thanks.
I am 64, I took 17600.00 out of my 401k this year since I lost my job. I did not take taxes out. My income will be 41,000.00 this is unemployment and SSI from my late husband. I used the IRS calculator to calculate my taxes, I do have taxes taken out of my SSI & unemployment. I will owe 3,800. Should I take out say 5000.00 more this year and have the take out about 80% and 10% state?
What if I don’t even care about the penalties? They are telling me that I cannot touch the funds until the end of my severance period, which does me no good and frankly sounds like a lie. Any advice?
I am 74 y.o and just retired from a part time job. I have 40,000 in my 401 account and they told me I have 60 days to do something with the money in the account, if I transfer the money to my back account will I be penalized or can I put it in cds? can you please point me in thr right direction.
Is it age 55 or is it the year you turn 55 that you won’t have to pay a 10 % penalty.
I am being sued by a prior credit card company. I have had cancer and lived away from my husband for several years. I didn’t realize I owed this money. I have enough in my personal 401K to cover the almost 10000 bill (5000 plus interest), but they won’t let me take it. This 401K has nothing to do with my regular retirement account. Why can’t I at least take out what I have put in, minus taxes? I have an outstanding loan, so the hardship ends up to me only about $600.
I am desperate and could end up with garnishments to my wages, etc.
I thought there were some hardship reasons. Is that true?
File bankruptcy in credit card & start over
how do you set up a
withdrawal plan after age 66 as income from your 401K
I am 62 and have about $25,000 in my retirement acct. A little of it is in a Roth the rest in a 401k. We owe about 20,000 to the irs for back taxes (long story); will I get penalized for taking all of it out to pay off the irs?
I’m on unemployment and if I take out my 401k it seems I would lose my benefits because I have to let them know, is there a way I could not report and not pay the taxes up front, but do a 1099 at the end of the year ??
Can I get another loan this year if I pay a current one off early?
Hi. I am 70 years young. My wife is 59 . young.We got a divore this year in the state of Tn. She gave me 30% of her 401k as part of the settlement agreement. About 130,000. what is the best way to remove the money with least penalty.If any. Thanks
im 52 and want to cash out my ira to build a garage..ira is 20,000.00 i beleive some of that was prepaid tax..how do i find out what portion was prepaid tax.
I’m 5 months away from turning 60, can I withdraw from my 401K without penalties or having to pay tax ?
Donna – If you have rolled your 401k funds to an IRA, age 59 1/2 is the earliest you can withdraw funds from an IRA account and pay no early withdrawal penalty tax.
If your funds are still in the 401k plan and you are retired, you can access 401k funds at age 59 1/2 and pay no early withdrawal penalty tax.
If you are still working, you can access funds from an old 401k plan once you reach age 59 1/2, but you may not have the same access to funds inside the 401k plan at the company you currently work for. If you are still working for the company at which your 401k plan is at, check with your 401k plan administrator to see if your plan allows what is often called an “in-service” withdrawal at age 59 ½. Some 401k plans allow this and others do not.
if i change my 401k over to a roth at age 50 will I pay taxes or penalties on withdrawing this money from my roth at 59.1/2 also is there a limit on how much I take out?
I have recently been let go at my job. I have an outstanding loan of little over $1200 i need to cash the 401k out completely, can they take what i owe out of the remaining balance take out the penalty and then send a check for the remainder balance?
I will retire soon too – You must be separated from your employer to roll your 401k into a Roth IRA. You cannot do this if you are still working for the same company and/or employer unless you are aged over 59 ½. And, whether you can rollover depends on your plan administrator.
Withdrawals from a Roth IRA are generally but not always tax-free and there are certain stipulations. For example, you have to be aged at least 59 1/2 for tax free withdrawals on the growth portion above principal.
An advantage of the Roth IRA over a traditional IRA is that there are fewer withdrawal restrictions and requirements. Transactions inside an account (including dividends, capital gains and interest) do not incur a current tax liability.