Can I close my 401(k) and take the money?

How you can close your 401(k) depends on your plan and your circumstances. For example, if you quit your job, you must request a distribution from your employer or plan administrator. Though the funds will then be distributed directly to you, there will be federal and state taxes, as you would incur on your regular income, and a 10% federal penalty tax if you are under the age of 59.

What reasons can you withdraw from 401(k) without penalty?

Here are some examples of reasons often accepted for early withdrawals: - You leave your job the year you turn 55. - You leave your job at the age of 50 if you work in federal law enforcement, customs, border protection, traffic control or federal firefighting. - You divorce and the court orders you to split up the funds in your 401(k) with your ex-partner. - You were called to active duty as a military reservist. Your ability to withdraw funds from your 401(k) early without penalty will vary, depending on what plan you have.

How much will I get if I cash out my 401(k) early?

Cashing out your 401(k) early typically comes with a 10% penalty tax, plus the cash would be subject to income tax if it hasn't already been paid. For example, if you have $10,000 in the account you are cashing out, you would owe the government $1,000 of that total, plus other taxes and fees, leaving you with less than $9,000.

Can I take out my 401(k) at 35?

Yes, you can take money out of your 401(k) early, but if you do so at age 35, you would incur a 10% penalty and have to pay deferred taxes on the amount, as it is before the retirement age of 59½.

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How To Withdraw From a 401(k) Early

May 11, 2023

6 min Read

Written by Caitlyn Moorhead

Edited by Amber Barkley

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You’ve been carefully and consciously adding to your 401(k) throughout your career. This retirement savings is a heavy financial investment and goal. Though you are supposed to wait until at least you reach age 59½ to access money from your 401(k), is it possible to withdraw money from your 401(k) account early? Yes, it is — but there are some caveats.

Which 401(k) Account Do You Have?

A 401(k) retirement plan is a company-sponsored retirement savings account you contribute to automatically from your paycheck. Often, your company matches your contributions up to a certain percentage. There are two kinds of 401(k) retirement accounts:

Traditional: When you make contributions before taxes, but pay income taxes on the distributions in retirement.
Roth: Funds in this account are after tax and you can withdraw them tax-free upon reaching retirement age.

The difference between the two is important to know when seeking early distributions or wanting to take advantage of 401(k) loans.

Can You Withdraw From Your 401(k) Plan Early?

There are possible situations where you are allowed to withdraw from your account without incurring an early withdrawal penalty or the 10% early required minimum distribution tax penalty. If any of these scenarios apply to you, the IRS can waive fees. Here are some examples:

You leave your job the year you turn 55.
You leave your job at the age of 50 if you work in federal law enforcement, customs, border protection, traffic control or federal firefighting.
You divorce and the court orders you to split up the funds in your 401(k) with your ex-partner.
You were called to active duty as a military reservist.
If you pull funds out the year you have a child or adopt a child — you can pull up to $5,000 per account within that year without penalty.
You are currently or have become disabled.
The IRS granted you relief due to a natural disaster.
You rolled your current 401(k) plan into another retirement account. This must be done within 60 days to avoid fees.
If you die — payments are then made to your beneficiary.

Wondering when to consider a 401k withdrawal? Check out our guide to see if you’re ready.

How To Make Early Withdrawals

There are essentially two types of early withdrawals from your 401(k). How you are taxed — and what considerations you are allowed — depends on what plan you have. Getting fees waived can be circumstantial, but here are two withdrawal options:

401(k) loans
Hardship withdrawals

1. 401(k) Loans

This loan is when you borrow money from your retirement account. It can be a short-term loan and must be repaid so your account is restored to its original value to avoid fees and penalties. Typically, you can borrow up to $50,000 or 50% of the funds in the account, whichever is less.

If repaid properly, this type of loan — which is essentially just borrowing money from yourself — can be a better way to borrow as you can save on interest rates from an actual personal loan from a bank. If you take this loan, you are required to make regularly scheduled repayments consisting of both principal and interest, made through a paycheck deduction.

However, be aware that your employer may not allow you to borrow on certain plans.

2. Hardship Withdrawals

This type of early distribution is taken out due to immediate and costly financial needs. It should be noted that you should take advantage of a hardship withdrawal only when absolutely necessary, as it permanently reduces your portfolio’s balance.

Here are some examples of reasons that would qualify for hardship withdrawals:

Pending foreclosure on the mortgage of your primary residence
Medical bills that are not covered or reimbursed by your insurance provider
Down payment for a primary residence
Cover costs of repairs to your primary residence
College tuition for 12 months for you or an immediate family member
Funeral costs for a loved one

The Cost of Early Withdrawals

Unless one of the qualifying scenarios applies to you, taking money out of your 401(k) before you reach the age of 59½ can be costly. It will be taxed as income by the IRS, and you could incur a 10% early withdrawal penalty.

Be sure to note that withdrawals from a Roth 401(k) are generally tax-free, as long as they are made five years after the first tax year in which you made your first contribution.

FAQ

Here are the answers to frequently asked questions about how to withdraw money from a 401(k) early.

Can I close my 401(k) and take the money?
- How you can close your 401(k) depends on your plan and your circumstances.
- For example, if you quit your job, you must request a distribution from your employer or plan administrator. Though the funds will then be distributed directly to you, there will be federal and state taxes, as you would incur on your regular income, and a 10% federal penalty tax if you are under the age of 59.
What reasons can you withdraw from 401(k) without penalty?
- Here are some examples of reasons often accepted for early withdrawals:
  - - You leave your job the year you turn 55.
  - - You leave your job at the age of 50 if you work in federal law enforcement, customs, border protection, traffic control or federal firefighting.
  - - You divorce and the court orders you to split up the funds in your 401(k) with your ex-partner.
  - - You were called to active duty as a military reservist.
- Your ability to withdraw funds from your 401(k) early without penalty will vary, depending on what plan you have.
How much will I get if I cash out my 401(k) early?
- Cashing out your 401(k) early typically comes with a 10% penalty tax, plus the cash would be subject to income tax if it hasn't already been paid. For example, if you have $10,000 in the account you are cashing out, you would owe the government $1,000 of that total, plus other taxes and fees, leaving you with less than $9,000.
Can I take out my 401(k) at 35?
- Yes, you can take money out of your 401(k) early, but if you do so at age 35, you would incur a 10% penalty and have to pay deferred taxes on the amount, as it is before the retirement age of 59½.

Information is accurate as of May 11, 2023.

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