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How To Make an Early Withdraw From Your 401(k)

It can be done, but do it only as a last resort

By

Troy Segal

Updated June 26, 2024

Reviewed by

Ebony Howard

Fact checked by Kirsten Rohrs Schmitt

advisor talking to a couple while sitting on a couch — Morsa Images / Getty Images

If your employer allows it, getting money from a 401(k) plan before age 59½ is possible. However, early withdrawals deplete retirement savings permanently and, minus a few exceptions, carry a 10% penalty and an income tax bill. A company's human resources department can help you explore your options.

Key Takeaways

If you are under 59½, you will incur a 10% early withdrawal penalty and owe regular income taxes on the distribution.
A withdrawal penalty is waived for certain hardships.
Loan options are often available from your 401(k) to repay over time with payroll deductions.

Penalties and Exceptions

Withdrawing money from a 401(k) early means you will owe income taxes on the distribution along with a 10% tax penalty on the amount withdrawn if you are under age 59½ unless it qualifies as a hardship withdrawal under Internal Revenue Service (IRS) rules or as an exception to the penalty under IRS rules.

$6,300

The approximate amount you will clear on a $10,000 withdrawal from a 401(k) if you are under age 59½ and subject to a 10% penalty and taxes.

The IRS permits withdrawals without a penalty for “immediate and heavy financial need.” The agency also permits withdrawals without a penalty for certain specific uses, including a down payment on a first home, qualified educational expenses, and unreimbursed medical bills.

You may also withdraw up to $5,000 without penalty to pay expenses related to the birth or adoption of a child under the terms of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

With a hardship withdrawal, you will still owe the income taxes on the distribution even though the penalty is waived. If it's a traditional 401(k), You’ll owe taxes on the entire withdrawal for a 401(k) but only own taxes on the earnings that have accumulated on the account if it's a Roth 401(k).

Withdrawal Alternatives

Loan: You can take a 401(k) loan to make an early withdrawal. Essentially, you’re loaning money to yourself, with a commitment to pay it back. A loan allows you to replace the money, which you can do through payments deducted from your paycheck. Check with your employer to see if you’re eligible.

SEPP withdrawals: Substantially equal periodic payments (SEPPs) are an option for withdrawing funds from an IRA without paying the early distribution penalty of a 401(k). Withdrawals are not allowed while working for your employer. If the funds are from an Individual Retirement Account (IRA), you may start SEPP withdrawals at any time.SEPP must be calculated using one of three methods approved by the IRS: fixed amortization, fixed annuitization, or required minimum distribution (RMD).

Do I Have To Pay Back a 401(k) Loan?

Any money not repaid on a 401 (k) loan, plus interest will be considered a plan distribution. Some plans may even require you to repay the entire loan if you leave your job.

How Much Tax Do I Pay on an Early 401(k) Withdrawal?

With a traditional withdrawal, the money will be taxed as regular income, just as it would in retirement. That’s from 10% to 37%, depending on your taxable income. The taxes will be due for the tax year you take the distribution.

What Are the Pros and Cons of a Withdrawal vs. a 401(k) Loan?

A withdrawal is a permanent hit to your retirement savings. By pulling out money early, you’ll miss long-term growth. Though you won’t have to pay the money back, you will have to pay the income taxes due, plus a 10% penalty if the money does not meet the IRS rules for a hardship or an exception. A loan against your 401(k) has to be paid back. If the money is repaid on time, you won’t lose much of that long-term growth.

The Bottom Line

To withdraw from your 401(k), speak to your human resources department first to explore your options. Withdrawing money early from your 401(k) can carry serious financial penalties, tax implications, and missed long-term growth.

Article Sources

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Internal Revenue Service. “Topic No. 424 401(k) Plans.”
Internal Revenue Service. “Retirement Topics—Hardship Distributions.”
Internal Revenue Service. “Retirement Topics—Exceptions to Tax on Early Distributions.”
Congress.gov, U.S. Congress. “H.R.1994—Setting Every Community Up for Retirement Enhancement Act of 2019: Text: Sec. 113.”
Internal Revenue Service. “401(k) Resource Guide—Plan Participants—General Distribution Rules.”
Internal Revenue Service. “Substantially Equal Periodic Payments: 2. Is There Guidance on This Exception?”
Internal Revenue Service. "Considering a Loan From Your 401(k) Plan?
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."

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