Under Age 55
- If you are under age 55 and still working for your employer you'll find options on accessing your 401k money in What to Know Before Cashing Out Your 401k.
- If you are under age 55 and no longer employed with the company where your 401k plan is at, see How to Take Money Out of a 401k Plan.
Age 55 or Older
If you are age 55 or older there are different rules that apply depending on your age.The three ages to take note of are 55, 59 1/2, and 70 1/2. Below are the rules that apply at each of those retirement ages.
Age 55 - 59 1/2
401k plans allow for penalty-free withdrawals at age 55. To use this 401k retirement age 55 provision you must:
- Terminate employment no earlier than the year in which you turn age 55.
- Leave your funds in the 401k plan to access them penalty-free.
Watch out for the two ways you can void the age 55 liquidity provision:
- If you retire at 54, and wait until age 55 to take a withdrawal, the 401k retirement age 55 provision will not apply. Your withdrawal will be subject to a 10% early withdrawal penalty tax.
- If you roll your 401k plan over to an IRA the retirement age 55 provision will not apply. The earliest age at which you can withdraw funds from a traditional IRA account without penalty taxes is age 59 ½.
Age 59 ½+
Access to your 401k funds at age 59 1/2 depends on whether you are still working or not. Here are the basics:
- 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, you will have to 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.
401k Retirement Age 70 ½
Age 70 1/2 is the age that required minimum distributions start. At this age, in general, you must begin taking distributions from your tax-deferred retirement plans (plans like IRAs and 401ks).
- If are still employed by the company at which your 401k plan is at, you are not an owner, and you do not wish to take a distribution, your plan may offer an exception to these mandatory distributions. You will have to check with your plan administrator to see if they allow an exception to the required minimum distribution rules if you are still working at age 70 1/2.
Dana Anspach, CFP®, RMASM, has been the About.com Guide to MoneyOver55 since 2008. She is the founder of Sensible Money, LLC, and author of a book on retirement income planning with a chapter devoted to company benefits. You can learn more about Dana's work in her bio.