Can I Cash Out My 401(k) at Age 62? Taxes, Medicare, Rollovers

You can cash out a 401k at age 62 without paying the 10% early-withdrawal penalty, because that penalty only applies to distributions taken before 59½.¹ The bill you will pay is income tax. Every dollar coming out of a traditional 401k lands on your tax return as ordinary income in the year you receive it, and a lump sum large enough to empty the account can push you into brackets you don’t normally see, raise your Medicare premiums two years later, and make more of your Social Security taxable. Whether cashing out is the right move at 62 depends on the size of the balance, whether you are still working, and how patient you can be about taking the money in pieces.

Why the Penalty Doesn’t Apply

Federal law adds a 10% extra tax on most retirement-plan distributions taken before age 59½.¹ At 62 you are more than two years past that cutoff, so the IRS treats your withdrawal as an ordinary retirement distribution. No penalty applies on top of income tax.

The Tax Bill on a Cash-Out

Distributions from a traditional 401k are ordinary income, stacked on top of any wages, Social Security, or other income you have that year.² Your rate depends on total taxable income and filing status. For 2026, single-filer brackets run from 10% on the first $12,400 of taxable income up to 37% above $640,600. For married couples filing jointly, the 37% bracket starts above $768,700.³

Because the tax code is progressive, a big lump sum can push part of your income into brackets higher than the one you normally sit in. Someone typically in the 12% bracket who pulls $150,000 in a single year will see slices of that money taxed at 22% and 24%. Splitting the withdrawal across several tax years, or rolling the balance to an IRA and drawing it down over time, keeps more of the money in the lower brackets.

The Mandatory 20% Withholding

When a plan pays a taxable distribution directly to you rather than transferring it to another retirement account, the administrator must withhold 20% for federal income tax before sending the rest.² The 20% is a floor, not a final answer. You can ask for more; you cannot ask for less. Any overpayment comes back as a refund; any shortfall is due when you file.

State Income Tax

Most states treat 401k distributions as regular income. Rates run from 0% in states with no income tax to above 13% in the highest-tax states. Some states carve out partial exemptions for retirement income for older residents. Check your state’s tax agency for what applies where you live.

After-Tax Contributions and the Pro-Rata Rule

If some of the money in the plan came from after-tax (non-Roth) contributions, part of every withdrawal is a return of dollars you already paid tax on. The IRS requires each distribution to include a proportional share of your pre-tax and after-tax balances. If 80% of the account is pre-tax money and earnings and 20% is after-tax contributions, then 80% of any withdrawal is taxable and 20% is not.⁴ You cannot elect to pull the after-tax money first.

Roth 401k Money Is Different

If part of the balance sits in a designated Roth 401k, the contributions went in after tax. Qualified distributions, including the earnings, come out tax-free. To qualify at 62, the Roth account must have been open for at least five years. If that five-year clock has not run, the earnings portion is taxable even though you have cleared the age test.

Cashing Out While Still Working

If you are still employed by the company that sponsors the plan, cashing out may not be on the menu. Federal rules permit plans to allow in-service withdrawals after 59½, but they don’t require it, and each plan writes its own policy.² Some plans open up distributions at 59½, some at 62, some not until you leave. The rules are in your plan’s Summary Plan Description, which HR or the plan administrator will send on request. If your plan blocks in-service withdrawals, you would need to separate from the employer before the administrator can process a distribution.

How a Big Withdrawal Changes Your Medicare Premiums

Medicare bases Part B and Part D premiums on your modified adjusted gross income from two years earlier. A large cash-out at 62 lands on this year’s tax return, and Medicare will use that income to set your premiums at 64.⁵ The surcharge is called an income-related monthly adjustment amount, or IRMAA.

For 2026, single filers with modified adjusted gross income at or below $109,000 (or $218,000 for joint filers) pay the standard Part B premium of $202.90 a month. Above those thresholds, the surcharge climbs in tiers:⁶

$109,001–$137,000 single / $218,001–$274,000 joint: $284.10 a month
$137,001–$171,000 single / $274,001–$342,000 joint: $405.80 a month
$171,001–$205,000 single / $342,001–$410,000 joint: $527.50 a month
$205,001–$499,999 single / $410,001–$749,999 joint: $649.20 a month
$500,000 or more single / $750,000 or more joint: $689.90 a month

Part D adds a separate IRMAA at the same income thresholds, up to $91.00 a month on top of your plan’s base premium.⁶ Spreading the withdrawal over several years can keep you under the thresholds.

How It Affects Social Security

A 401k withdrawal does not reduce your Social Security retirement benefit. The Social Security Administration does not count retirement-plan distributions as “earnings” under its earnings test.⁷

It can, however, make more of your Social Security benefits taxable. The IRS looks at your “combined income,” which is adjusted gross income plus nontaxable interest plus half of your Social Security benefits. For single filers, once that total tops $25,000, up to 50% of benefits become taxable; above $34,000, up to 85%. For joint filers, the thresholds are $32,000 and $44,000.⁸ Because 401k distributions land in adjusted gross income, a lump sum can push you well past those thresholds for that year.

Rolling Over Instead

If the goal is access to the money rather than a single wire to your checking account, a rollover to a traditional IRA (or another employer’s 401k) keeps the balance growing tax-deferred and lets you decide each year how much to take. That control is what makes bracket management possible.

There are two mechanics. A direct rollover moves the money from the plan administrator to your IRA provider or new plan. Nothing is withheld and nothing is taxed. An indirect rollover pays the money to you, with 20% withheld; you then have 60 days to deposit the full original amount, including replacing the withheld 20% out of pocket, into an IRA or another qualified plan. Miss the deadline or come up short, and the shortfall is a taxable distribution.⁹ A direct rollover is almost always the better route.

Spousal Consent and QDROs

If you are married, your spouse may need to sign off before the plan will process a distribution. Certain plans, particularly those that offer annuity-style payouts, require written spousal consent when a distribution could reduce survivor benefits. The consent has to be witnessed by a plan representative or a notary. Without it, the administrator will reject the request.

Divorce adds another wrinkle. A Qualified Domestic Relations Order (QDRO) is a court order directing the plan to pay part of the account to a former spouse, child, or dependent. If a QDRO applies, the administrator honors it before your distribution. Amounts paid to a former spouse under a QDRO are taxed to the former spouse. Amounts paid to a child or other dependent under a QDRO are still taxed to you.¹⁰

Outstanding 401k Loan

If you borrowed from the plan and still have a balance on the loan, cashing out (or leaving the employer) usually triggers a plan loan offset. The plan reduces your account by the unpaid loan amount and reports that reduction as a distribution. The offset is taxable income unless you roll an equal amount into an IRA or another qualified plan. A standard plan loan offset gives you 60 days to complete the rollover. A qualified plan loan offset, triggered by plan termination or severance from the employer, gives you until your tax filing deadline, including extensions.¹¹ Factor the loan balance into your tax projection, because that money counts as income even though no new cash reaches you.

How to Request the Distribution

Start with a distribution request form from the plan administrator. You will provide your legal name, Social Security number, and plan account number. The form asks you to pick a method (lump sum, partial withdrawal, or installments if the plan supports them), set federal tax withholding (with the 20% floor on a lump sum paid to you), and enter bank routing and account numbers for an electronic transfer. Most plans accept the form through an online benefits portal; some still want a signed copy by mail or fax.

After you submit, the administrator confirms your age, checks whether spousal consent applies, and verifies there are no QDRO claims or unresolved loan issues. Allow one to three weeks for review and delivery, though timelines vary by plan. An electronic transfer to your bank is faster and more secure than a mailed check.

1
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
2
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
3
Internal Revenue Service. Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
5
Medicare.gov. 2026 Medicare Costs
6
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
7
Social Security Administration. Will Withdrawals From My Individual Retirement Account Affect My Social Security Benefits?
8
Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
9
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
10
Internal Revenue Service. Retirement Topics – QDRO: Qualified Domestic Relations Order
11
Internal Revenue Service. Plan Loan Offsets