A partial 401(k) distribution lets you withdraw some of your vested balance while leaving the rest invested, but only if you’ve hit a qualifying event your plan allows. The IRS permits withdrawals when you leave your job, reach age 59½, suffer a qualifying hardship, or meet one of several other triggers. Your plan doesn’t have to offer every option the law allows, so the plan document is the final word. Call your plan administrator before you count on any of this.
When a Partial Withdrawal Is Allowed
Federal law restricts when money can leave a 401(k), and your employer’s plan may tighten things further. A few events cover most situations.
You’ve Left the Employer
Separation from service is the cleanest trigger. Once you leave for any reason, retirement, resignation, or layoff, you generally gain access to your vested balance and can take all or part of it.1Internal Revenue Service. 401(k) Resource Guide Plan Participants General Distribution Rules If your vested balance is at least $7,000, you typically have four choices: leave the money where it is, roll it to an IRA, roll it to a new employer’s plan, or take cash. Smaller balances may be cashed out or rolled to an IRA automatically, depending on plan terms.
You’re 59½ and Still Working
If you’ve reached 59½ while still employed, your plan may permit an in-service withdrawal without any showing of hardship. Not every plan does, and some restrict which money you can touch. A plan might open up your own salary deferrals while keeping employer matching contributions locked until separation. Your summary plan description or a quick call will confirm what’s available.
Hardship
A hardship withdrawal lets you pull money while still employed and under 59½, but only to meet an immediate and heavy financial need. The IRS recognizes a defined list:2Internal Revenue Service. Retirement Topics – Hardship Distributions
- Unreimbursed medical care for you, your spouse, dependents, or a plan beneficiary.
- Costs tied to buying your principal residence, excluding mortgage payments.
- Up to 12 months of postsecondary tuition, fees, and room and board for you, your spouse, children, dependents, or a beneficiary.
- Payments needed to avoid eviction or foreclosure on your primary home.
- Funeral or burial expenses for you, your spouse, children, dependents, or a beneficiary.
- Certain expenses to repair casualty damage to your principal residence.
The withdrawal is capped at the amount you actually need, including the taxes and penalties the distribution itself will cause. Final regulations in 2019 ended the old rule that you take a plan loan first.3Federal Register. Hardship Distributions of Elective Contributions, Qualified Matching Contributions, Qualified Nonelective Contributions Some plans still require it voluntarily. You do still need to have taken any other non-hardship distributions you’re entitled to before a hardship request will be approved. Hardship withdrawals cannot be rolled over, are always taxed, and still face the 10% early withdrawal penalty if you’re under 59½ unless a separate exception applies.
Other In-Service Withdrawals
Some plans, especially those with a profit-sharing component, permit broader in-service withdrawals of employer money or rollover balances once you’ve participated for a certain number of years, often two or five. Salary deferrals are usually locked down tighter than employer contributions unless you’ve hit 59½ or qualify for hardship.
What’s Actually Yours to Withdraw
Any partial distribution can come only from your vested balance. Your own salary deferrals are 100% vested from day one. Employer contributions, like matching or profit-sharing dollars, follow a vesting schedule. For employer contributions made after 2006, federal law requires either three-year cliff vesting (full vesting at three years, nothing before) or six-year graded vesting (20% at two years, climbing to 100% at six).4Internal Revenue Service. Fixing Common Plan Mistakes – Vesting Errors in Defined Contribution Plans
If you’ve been at the company two years under a three-year cliff schedule, your match isn’t available at all. Check a recent statement or ask your plan administrator for your vested percentage before you decide how much to take.
The Tax Hit
Money from a traditional pre-tax 401(k) is ordinary income in the year you receive it. It’s added to your wages and other income and taxed at your regular federal and state rates. There’s no capital gains treatment, no matter how long the money sat invested.
If the distribution qualifies as an “eligible rollover distribution” and is paid to you rather than rolled over, the plan administrator must withhold 20% for federal income tax before cutting the check. That withholding is a prepayment, not the final bill. If your actual rate is lower, the difference comes back as a refund; if it’s higher, you’ll owe more. State withholding may apply too. By the end of January after your distribution, you’ll get a Form 1099-R reporting the gross amount and anything withheld.5Internal Revenue Service. Form 1099-R
Roth 401(k) money works differently. A qualified Roth distribution is entirely tax-free, which requires you to be at least 59½ (or disabled or deceased) and at least five years past your first Roth contribution to the plan.6Internal Revenue Service. Retirement Topics – Designated Roth Account If both conditions aren’t met, only the earnings portion is taxable; the contributions come out tax-free because you already paid tax on them. The distribution is treated as a proportional mix of contributions and earnings, and the 10% penalty can hit the taxable portion if you’re under 59½.
The 10% Early Withdrawal Penalty
Take money out before 59½ and the IRS adds a 10% penalty on top of the income tax owed on the taxable portion.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts If you qualify for an exception, you claim it on Form 5329 with your return.8Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
Long-Standing Exceptions
The exceptions that cover most people:
- Rule of 55. You leave your job during or after the calendar year you turn 55 and the money comes from that employer’s plan. Rolling it to an IRA kills the exception. Public safety employees of state or local governments qualify at 50.9Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Total and permanent disability.
- A qualified domestic relations order directing payment to a spouse or former spouse in a divorce.
- Unreimbursed medical expenses above 7.5% of your adjusted gross income for the year.
- Substantially equal periodic payments based on life expectancy, taken at least annually and continued for five years or until you reach 59½, whichever is longer.
- An IRS levy on plan funds for a tax debt.
- Qualified birth or adoption expenses, up to $5,000 per child, taken within one year.
Newer Exceptions Under SECURE 2.0
The SECURE 2.0 Act of 2022 added several categories. Plans can adopt these but aren’t required to, so availability varies.
- Emergency personal expenses: up to $1,000 per year for an unforeseeable or immediate personal or family emergency, with only one such distribution per year. You have three years to repay; if you don’t, no further emergency distribution is allowed until the three-year window closes. The $1,000 isn’t indexed for inflation.10Internal Revenue Service. IRS Notice 2024-55
- Domestic abuse by a spouse or domestic partner within the past 12 months: up to the lesser of $10,000 (indexed) or 50% of your vested balance, self-certified to the plan, three years to repay.10Internal Revenue Service. IRS Notice 2024-55
- Terminal illness, with a physician’s certification (dated no later than the distribution) that the condition is reasonably expected to cause death within 84 months. Three years to repay if your health improves.11Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
- Federally declared disasters: up to $22,000 per disaster across all plans and IRAs for qualified individuals, repayable within three years and spreadable over three tax years for income reporting.12Internal Revenue Service. Disaster Relief Frequent Asked Questions – Retirement Plans and IRAs Under the SECURE 2.0 Act of 2022
- Long-term care insurance premiums: starting in late 2025, up to $2,600 per year.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Penalty-free is not tax-free. Setting Roth aside, all of these pre-tax 401(k) withdrawals are still ordinary taxable income. The SECURE 2.0 exceptions remove the 10% surcharge, nothing more.
Before You Withdraw: A Loan Might Cost Less
If your plan offers loans, you can borrow from your own balance and pay yourself back with interest, with no income tax or penalty, as long as you follow the repayment rules. The maximum is the lesser of $50,000 or 50% of your vested balance; if 50% is under $10,000, you can borrow up to $10,000.13Internal Revenue Service. Retirement Topics – Loans Repayment is within five years in substantially equal quarterly payments, longer if the money buys a primary residence.
The catch is leaving your employer with a loan outstanding. The plan may require immediate payoff, and any unpaid amount becomes a taxable distribution with the 10% penalty attached if you’re under 59½.13Internal Revenue Service. Retirement Topics – Loans If a job change is anywhere on the horizon, a loan can backfire.
Rolling Over Instead of Cashing Out
Most partial distributions qualify as eligible rollover distributions, meaning you can send the money to another retirement account and keep the tax deferral. Hardship withdrawals and required minimum distributions are the main exceptions; neither can be rolled over.
A direct rollover is the cleanest route. The plan sends funds straight to the receiving IRA or new employer plan, no 20% withholding, full amount transferred. An indirect rollover pays you first, with 20% withheld, and you have 60 days to deposit the money into another eligible account.14Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions To avoid tax on the whole distribution, you must deposit 100% of the original gross amount, replacing the withheld 20% from your own pocket; you’ll recover it as a credit at tax time. Deposit only what you received, and the withheld piece is taxed as a withdrawal. Miss the 60 days and the full amount becomes taxable, with the 10% penalty possible on top.
Where you send the money matters. A traditional IRA gives you the widest investment menu, but once 401(k) money moves to an IRA it loses Rule of 55 eligibility, which only applies to the employer plan you separated from. A new employer’s 401(k) keeps Rule of 55 intact and preserves federal creditor protections, at the cost of a narrower investment lineup. A Roth IRA conversion makes the full amount ordinary income in the conversion year in exchange for tax-free growth and withdrawals later.
How to Request One
Start by contacting your plan administrator or recordkeeper for the correct distribution request form. Each plan uses its own; generic paperwork won’t be accepted. On the form you’ll identify the triggering event, the dollar amount or percentage you want, and how to receive it, usually a check or an electronic transfer. For a direct rollover, you’ll also provide the receiving account’s details.
Hardship requests need supporting documents proving both the nature and the size of the need: medical bills, a purchase agreement, a tuition statement, an eviction notice. The request can’t exceed the documented expense plus estimated taxes and penalties. Incomplete paperwork or an inflated amount draws a denial or a correction request.
Most administrators process complete requests within 10 to 15 business days. The 20% federal withholding comes off any eligible rollover distribution paid to you; a direct rollover moves the full amount. Form 1099-R arrives early the following year. If you’re claiming a penalty exception, file Form 5329 with your return.