401(k) Withdrawal Rules: Early Withdrawal, Penalties, and Exceptions
A 401(k) withdrawal is a distribution of funds from an employer-sponsored 401(k) retirement plan. Under IRS rules, 401(k) withdrawals made before age 59½ are generally subject to a 10% early withdrawal penalty in addition to federal and state income taxes. Withdrawals made after age 59½ are subject to income tax but not the 10% penalty. Certain qualifying events — including hardship, disability, and specific SECURE 2.0 provisions — may exempt early withdrawals from the 10% penalty.
Source: IRS — Retirement Topics – Exceptions to Tax on Early Distributions
When Can You Withdraw from a 401(k)?
401(k) plans are designed for retirement savings, and access to funds is restricted before retirement age. The IRS permits distributions from a 401(k) under the following circumstances:
| Triggering Event | Income Tax | 10% Early Withdrawal Penalty |
|---|---|---|
| Age 59½ or older | Yes | No |
| Separation from service at age 55 or older | Yes | No |
| Disability (as defined by IRC §72(m)(7)) | Yes | No |
| Death (distribution to beneficiary) | Yes | No |
| Hardship distribution (if plan permits) | Yes | Yes (unless another exception applies) |
| Qualified Domestic Relations Order (QDRO) | Yes | No |
| IRS levy | Yes | No |
| Substantially equal periodic payments (72(t)) | Yes | No |
| Qualified birth or adoption distribution (up to $5,000, SECURE Act) | Yes | No |
| Emergency personal expense distribution (up to $1,000/year, SECURE 2.0) | Yes | No (if repaid within 3 years) |
| Federally declared disaster distribution (up to $22,000, SECURE 2.0) | Yes | No |
| Terminal illness | Yes | No |
| Source: IRS — Topic No. 558 - Additional Tax on Early Distributions ; IRS — 401(k) Resource Guide - General Distribution Rules | ||
401(k) Early Withdrawal Penalty
Withdrawals taken before age 59½ that do not qualify for an exception are subject to a 10% additional tax on the taxable portion of the distribution. This penalty is in addition to ordinary federal income tax and any applicable state income tax.
Example: An employee under age 59½ who withdraws $10,000 from a traditional 401(k) without qualifying for an exception would owe ordinary income tax on the full $10,000 plus a $1,000 penalty (10% of $10,000).
The 10% penalty is reported on IRS Form 5329 and paid when filing the annual tax return.
20% mandatory withholding: When a 401(k) distribution is paid directly to the participant (rather than rolled over), the plan administrator is required to withhold 20% for federal income tax. This withholding may not cover the full tax liability, and the participant may owe additional tax when filing.
Source: IRS — Hardships, Early Withdrawals and Loans
401(k) Hardship Withdrawal
A hardship distribution is a withdrawal from a 401(k) plan due to an immediate and heavy financial need. Not all 401(k) plans permit hardship distributions — the option must be included in the plan document.
Qualifying hardship expenses under IRS safe harbor rules:
- Medical expenses for the employee, spouse, or dependents
- Costs directly related to purchasing a principal residence (excluding mortgage payments)
- Tuition and related educational fees for the next 12 months for the employee, spouse, or dependents
- Payments necessary to prevent eviction from or foreclosure on a principal residence
- Funeral and burial expenses for the employee’s parent, spouse, dependent, or primary beneficiary
- Expenses for repair of damage to the employee’s principal residence
Hardship withdrawal rules:
- The distribution must be limited to the amount necessary to satisfy the financial need (including anticipated taxes and penalties)
- Hardship distributions cannot be rolled over to another plan or IRA
- Income tax applies to the taxable portion of the distribution
- The 10% early withdrawal penalty applies if the participant is under age 59½ and no other exception applies
- Plans may no longer require a 6-month contribution suspension after a hardship distribution (effective January 1, 2020)
Source: IRS — 401(k) Plan Hardship Distributions – Consider the Consequences; IRS — Retirement Topics – Hardship Distributions
SECURE 2.0 Withdrawal Provisions
The SECURE 2.0 Act of 2022 introduced several new penalty-free withdrawal options:
Emergency personal expense distribution: Participants may withdraw up to $1,000 per year for unforeseeable or immediate personal or family emergency expenses without the 10% penalty. If the distribution is repaid within 3 years, it is treated as a rollover and is not taxable. Effective for distributions after December 31, 2023.
Domestic abuse victim distribution: Participants who self-certify as domestic abuse victims may withdraw the lesser of $10,000 (indexed for inflation) or 50% of the vested account balance without the 10% penalty. Effective for distributions after December 31, 2023.
Federally declared disaster distribution: Participants affected by a federally declared disaster may withdraw up to $22,000 without the 10% penalty. The distribution may be repaid within 3 years.
Terminal illness distribution: Participants who are terminally ill (certified by a physician as having a condition expected to result in death within 84 months) may take penalty-free distributions. Effective for distributions after December 29, 2022.
Source: IRS — SECURE 2.0 Act – What’s New
401(k) Withdrawal After Age 59½
Participants who have reached age 59½ may take distributions from their 401(k) without the 10% early withdrawal penalty, regardless of whether they are still employed. However, the plan’s terms may restrict in-service distributions (withdrawals while still employed). Not all plans permit in-service distributions at age 59½ — the plan document determines availability.
Withdrawals from a traditional 401(k) after age 59½ are subject to ordinary income tax. Qualified withdrawals from a Roth 401(k) after age 59½ are tax-free if the account has been held for at least 5 years.
401(k) Withdrawal After Leaving a Job
Upon separation from service, participants may withdraw their entire vested 401(k) balance. The available options include:
- Direct rollover to a new employer’s 401(k) or to an IRA (no tax or penalty)
- Leave funds in former employer’s plan (if permitted and balance exceeds $5,000)
- Cash distribution (subject to income tax and 10% penalty if under age 59½; penalty waived if separation occurs at age 55 or older)
The Rule of 55 allows penalty-free withdrawals from the most recent employer’s 401(k) for employees who separate from service during or after the calendar year in which they turn 55. This exception applies only to the plan of the employer from which the participant separated — not to 401(k) plans from previous employers.
For a full comparison of rollover options, see 401(k) vs IRA: Key Differences.
Frequently Asked Questions
What is the penalty for early 401(k) withdrawal?
Withdrawals from a 401(k) before age 59½ are generally subject to a 10% additional tax penalty plus ordinary federal and state income taxes. The 10% penalty may be waived for qualifying exceptions including disability, separation from service at age 55+, qualified birth or adoption expenses, hardship (plan-dependent), terminal illness, and certain SECURE 2.0 provisions.
What is a 401(k) hardship withdrawal?
A hardship withdrawal is a distribution from a 401(k) to satisfy an immediate and heavy financial need, such as medical expenses, purchase of a primary residence, tuition, or prevention of eviction or foreclosure. The withdrawal is limited to the amount necessary to meet the need. Income tax applies, and the 10% early withdrawal penalty applies unless another exception is met.
Can I withdraw from my 401(k) while still employed?
In-service withdrawals are permitted after age 59½ if the plan allows them. Hardship distributions may be available at any age if the plan includes this provision. 401(k) loans are also available in some plans as an alternative to withdrawal. The availability of in-service withdrawals depends on the specific plan’s terms.
How is a 401(k) withdrawal taxed?
Traditional 401(k) withdrawals are taxed as ordinary income at the participant’s federal and state income tax rates. A 20% federal withholding applies to distributions not rolled over. Roth 401(k) qualified withdrawals (after age 59½ and 5-year holding period) are tax-free. The 10% early withdrawal penalty is a separate additional tax that applies to most distributions before age 59½.
What is the Rule of 55?
The Rule of 55 allows participants who separate from service during or after the calendar year they turn 55 to take penalty-free distributions from the 401(k) of that employer. The exception does not apply to plans from previous employers or to IRAs.
Can I avoid the 10% penalty on a 401(k) withdrawal?
Yes. The IRS provides multiple exceptions to the 10% early withdrawal penalty, including disability, substantially equal periodic payments (72(t)), qualified birth or adoption distributions, emergency personal expense distributions under SECURE 2.0, federally declared disaster distributions, terminal illness, QDRO distributions, and separation from service at age 55 or older.
Update History
Last Update: March 2026