How to Take Money Out of a 401(k): Withdrawals, Loans, and Rollovers

To take money out of a 401(k), you generally have four routes: a distribution after you leave the employer, a hardship withdrawal while still working, a loan against your balance, or a rollover into another retirement account. Which routes are open to you depends on your age, whether you still work for the employer sponsoring the plan, and what your specific plan allows. If you are under 59½, most withdrawals carry a 10% early withdrawal penalty on top of ordinary income tax, unless an exception applies.¹

Your Options Depend on Employment Status and Age

If you have already left the employer, your account is unlocked. You can take a cash distribution, roll the balance into an IRA or a new employer’s plan, or leave it where it is.²

If you still work for the employer, in-service access is more limited. Once you reach 59½, some plans allow in-service withdrawals for any reason.³ Before 59½, your realistic paths while employed are a hardship distribution or a plan loan, and only if your plan offers them.

Age changes the tax picture more than anything else. Reaching 59½ removes the 10% penalty on any distribution. Ordinary income tax still applies to pre-tax dollars whenever you withdraw them.¹

Withdrawing After You Leave the Job

Once you separate from service, whether by resignation, retirement, or termination, you can request a distribution of your vested balance. Money you contributed from your own paycheck is always fully yours. Employer contributions may follow a vesting schedule, and any unvested portion is forfeited when you leave.⁴ Ask your plan administrator for your vested balance before you commit to a withdrawal amount.

If you leave before age 59½, the 10% penalty normally applies. One important carve-out is the Rule of 55: if you separate from service during or after the calendar year you turn 55, you can take penalty-free withdrawals from that employer’s 401(k). It only works for the plan tied to the job you just left, not for accounts left with prior employers.¹ Income tax still applies.

Penalty-Free Exceptions Before 59½

Federal law lists several situations where the 10% early withdrawal penalty does not apply, even though you still owe income tax on the distribution in most cases.⁵ The long-standing exceptions include:

Total and permanent disability as defined under federal tax law.
Distributions to a beneficiary after the account holder’s death.
A series of substantially equal periodic payments based on your life expectancy, which must continue for at least five years or until you reach 59½, whichever is longer.
Distributions to an alternate payee, typically an ex-spouse, under a qualified domestic relations order.
An IRS levy against your account to satisfy a tax debt.

The SECURE 2.0 Act added several more exceptions for distributions made after December 31, 2023:

One emergency personal expense withdrawal per calendar year, capped at $1,000 or your vested balance above $1,000, with three years to repay.⁵
Victims of domestic abuse by a spouse or domestic partner, up to the lesser of $10,000 or 50% of the vested balance.
Terminal illness certified by a physician as expected to result in death within 84 months, in any amount, with an option to repay within three years.
Federally declared disaster distributions of up to $22,000 across all your retirement accounts, with three years to repay.⁶
Up to $5,000 within one year of a child’s birth or legal adoption, repayable to the account.

Plans are not required to offer every exception. Some are optional provisions the plan sponsor chooses to adopt. Check your Summary Plan Description or ask your plan administrator which ones your plan honors.

Hardship Withdrawals While Still Employed

If you cannot wait until you leave the job, a hardship withdrawal may be available if your plan permits them. You can only withdraw the amount needed to cover an immediate and heavy financial need, plus the taxes and penalties you will owe on the withdrawal itself.⁷

IRS safe harbor categories that automatically qualify as an immediate and heavy financial need are:

Medical expenses for you, your spouse, dependents, or a plan beneficiary.
Costs directly related to purchasing your primary home, excluding mortgage payments.
Tuition, fees, and room and board for the next 12 months of post-secondary education for you, your spouse, children, dependents, or a beneficiary.
Payments to prevent eviction from your primary home or foreclosure on your mortgage.
Funeral expenses for you, your spouse, children, dependents, or a beneficiary.
Certain repair expenses for damage to your primary home.

You can generally self-certify that you have a qualifying need and that you cannot cover it through other means. Your employer can rely on your written statement unless it has actual knowledge the statement is false.⁷ You are not required to take a plan loan first, though some plans still impose that step.

A hardship distribution is permanent. You cannot repay it into the account. The withdrawn amount is taxed as ordinary income and, if you are under 59½, the 10% penalty applies unless a separate exception covers your situation.

Borrowing From Your 401(k)

If your plan permits loans, borrowing avoids taxes and penalties as long as you repay on schedule. The maximum loan is the lesser of $50,000 or 50% of your vested balance.⁸ Some plans allow a minimum loan of up to $10,000 even when that exceeds half your balance, but this is optional.

Standard repayment terms are:

Five years to repay a general-purpose loan. Loans used to buy a primary residence can be repaid over a longer period if the plan allows.
Level amortization with payments at least quarterly, typically through payroll deduction while you are employed.
A reasonable interest rate, which most plans set at or near the prime rate plus one percentage point.⁸

If you leave the job with an unpaid balance, the plan may require you to repay in full. If you cannot, the outstanding amount is treated as a distribution, reported on Form 1099-R, taxed as ordinary income, and subject to the 10% penalty if you are under 59½. A loan offset at separation is eligible for rollover: you can deposit the amount into an IRA or new employer plan by the due date of your tax return, including extensions, to avoid the tax hit. A deemed distribution triggered by missed payments while still employed is not eligible for rollover.⁹

Rolling Over Instead of Cashing Out

When you leave an employer, moving your 401(k) into an IRA or a new employer’s plan keeps the money growing tax-deferred and avoids any immediate tax bill. There are two ways to do it.

A direct rollover sends the funds straight from your old plan to the new account, with no withholding.¹⁰ This is the simpler path.

An indirect rollover routes the check through you. The plan must withhold 20% of the taxable amount for federal taxes, even if you intend to redeposit everything.¹⁰ You then have 60 days to deposit the funds into a qualifying retirement account. To roll over the full amount and avoid taxes on the 20% withheld, you have to replace that portion out of your own pocket and deposit the entire original amount. The withheld amount is credited back when you file your tax return.

Roth 401(k) Withdrawals Work Differently

A designated Roth account inside your 401(k) follows separate rules because you contributed after-tax dollars. A qualified distribution, including earnings, is completely tax-free. To qualify, you must be at least 59½, disabled, or deceased (with the payout going to a beneficiary), and at least five years must have passed since your first Roth contribution to the plan.¹¹

If a distribution doesn’t meet both tests, the earnings portion is taxable and may face the 10% penalty. Your own Roth contributions come out tax- and penalty-free because you already paid tax on that money. When rolling a Roth 401(k), send it to a Roth IRA, not a traditional IRA, to keep the tax-free treatment.

How to Submit the Request

Start with your plan’s Summary Plan Description, which spells out the withdrawal and loan options available to you. You can usually find it on your plan’s online portal or through your HR department. Plans vary widely, so what your neighbor’s plan allowed may not be on offer in yours.

Once you know your options, complete the appropriate form: a distribution request for permanent withdrawals, or a loan application for a plan loan. Most major recordkeepers let you initiate both online with a digital signature.

If you are married and your plan is subject to joint and survivor annuity rules, your spouse may need to provide written consent, witnessed by a notary or a plan representative, before the plan can process the distribution.¹² This applies to all money purchase pension plans and some 401(k) plans. Confirm with your plan administrator whether spousal consent is required.

A distribution form typically asks for:

Your Social Security number and current contact information.
The amount you want to withdraw, or confirmation that you want the entire vested balance.
Delivery preference: direct deposit with routing and account numbers, or a mailed check.
Federal tax withholding election, plus state withholding if applicable.
For rollovers, the receiving account’s name, number, and address.

After you submit, the recordkeeper takes several business days to verify your balance and confirm the request. Online requests are often processed within two to three business days. Paper submissions and reviews that need extra documentation take longer. Once approved, the recordkeeper liquidates investments to raise cash, and direct deposits generally arrive within a few business days. Checks add mailing time.

Taxes and What You’ll Receive on Form 1099-R

Any taxable distribution that is not directly rolled over is subject to mandatory 20% federal income tax withholding.¹⁰ The withholding is a prepayment against your actual tax bill for the year, not a separate tax. If your effective rate is higher, you owe more at filing. If it is lower, you get the difference back as a refund.

Some states also require withholding on 401(k) distributions. Your distribution form usually includes a line for state preferences.

Your plan will issue Form 1099-R reporting the gross distribution, the taxable portion, and any federal and state tax withheld. Distributions are taxed as ordinary income in the year you receive them, so a large withdrawal can push you into a higher tax bracket for that year.

Required Minimum Distributions Later On

At the other end of the timeline, federal law does not let you keep money in a 401(k) forever. Required minimum distributions start at age 73 if you were born before 1960, and at 75 if you were born in 1960 or later.¹³ Missing an RMD triggers a 25% excise tax on the shortfall, dropping to 10% if you correct the mistake within two years. If you are still working and don’t own 5% or more of the company, most plans let you delay RMDs from your current employer’s 401(k) until you actually retire.

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. Issue Snapshot – Hardship Distributions From 401(k) Plans
4
Office of the Law Revision Counsel. 29 USC 1053 – Minimum Vesting Standards
5
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
6
Internal Revenue Service. Disaster Relief FAQs – Retirement Plans and IRAs Under the SECURE 2.0 Act of 2022
7
Internal Revenue Service. Retirement Topics – Hardship Distributions
8
Internal Revenue Service. Retirement Topics – Plan Loans
9
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
10
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
11
Internal Revenue Service. Retirement Topics – Designated Roth Account
12
U.S. Department of Labor. FAQs About Retirement Plans and ERISA
13
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs