Funds From My 401(k)

Nov 08, 2023 By Susan Kelly

When using your 401(k) without incurring penalties, the eligibility requirements change depending on your age. The younger you are, the fewer alternatives you have, particularly if you haven't yet reached the age at which you can retire. If you need the money right now for things unrelated to retirement, it might be aggravating, but any retirement plan's purpose is to assure that you will have an income when you retire.

Withdrawing From Your 401(k) Before Age 55

If you still work for the employer that administers your 401(k) plan and is under 55, you have two options for handling your retirement savings. This is based on the assumption that these choices are presented to you by your company. You can take out a 401(k) loan or a hardship withdrawal if you need immediate access to your money; however, a hardship withdrawal may be made only from an active 401(k) account your employer manages. Older 401(k) plans do not permit the taking out loans of any kind. If the firm no longer employs you, you can roll the assets over to an individual retirement account (IRA) or another employer's 401(k) plan; however, the receiving plan must permit this rollover.

Withdrawing Funds Between Ages 55 and 59 1/2

Starting at age 55, participants in most 401(k) plans are eligible to make penalty-free withdrawals from their accounts. To be eligible for this choice, you must have quit your employment no earlier than the year in which you became 55 years old. There are a few exceptions to this rule, but in general, you must keep your assets in the 401(k) plan to withdraw them without incurring a penalty. Many law enforcement personnel, firefighters, and emergency medical technicians are eligible to get their monies earlier than 50, thanks to this option.

Be sure you understand the regulations around the minimum age required for withdrawals free of fees. For instance, the age 55 rule will not apply if you retire in the year before you reach the age of 55. In this scenario, you would be liable to an early withdrawal penalty tax of 10% on any money you remove from your retirement account.

If you convert your 401(k) plan to an IRA, the age-55-and-up retirement rule won't apply to your account anymore. The age of 59 and a half is the earliest age at which one may withdraw money tax-free from a standard individual retirement plan (IRA).

Withdrawing From Age 59 1/2 to Age 72

Whether or not you are still employed beyond age 59 1/2 determines whether or not you may access the assets in your 401(k).

Have You Retired?

If you retire after reaching 55 and stop working after that age, you won't be subject to an early withdrawal penalty when you access your savings at 59 and a half. You must keep money in your plan, and the regulations remain the same even if you have rolled over your 401(k) assets into an individual retirement account (IRA). The earliest age at which you can withdraw money tax-free from an individual retirement account (IRA) is 59 and a half years old.

Are You Still Working?

Even if you haven't yet stopped working, you may start withdrawing money from an old 401(k) plan after you reach the age and a half. When you quit a job, rolling over your previous 401(k) funds is the smartest thing you can do with those accounts. If you are 59 and a half years old or older when you make a withdrawal from your previous accounts, you will not be subject to any penalties. If you are still working at a company where you previously had a 401(k) plan, you are required to inquire with the department of human resources about the regulations that govern taking money out of that plan.

Required Minimum Distributions

As of 2021, the beginning age for RMDs will be 72 years old. When you reach that age, you are normally required to start receiving distributions from your tax-deferred retirement plans, such as IRAs and 401(k)s. If you turned 70 and a half the year before, you have until April 1, following the year in which you turn 72, to take your first RMD payment.

Suppose you are still employed by the firm that handles your 401(k), but you are not allowed to be an owner of the business. In that case, your plan may provide an exemption to these obligatory distribution regulations. Suppose you are still employed at the age of 72. In that case, you should inquire with the administrator of your retirement plan to determine whether they will make an exemption to the regulations governing the mandatory minimum payout.

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