When Can You Take Money Out of a 401(k) Without Penalty?

You can take money out of a 401(k) without the 10% early withdrawal penalty once you reach age 59½, and before that age in roughly a dozen specific situations the tax code recognizes.¹ Ordinary federal and state income tax still applies to whatever you pull from a traditional 401(k); the exceptions only remove the extra 10%. The list below covers every situation that qualifies, plus the practical steps for claiming the exception on your tax return.

Age 59½ and the Rule of 55

At 59½, the penalty simply goes away. Any distribution after that age is treated as ordinary retirement income, and most plans allow in-service withdrawals at 59½ even if you keep working. Confirm with your plan administrator, because plans can be more restrictive than the tax code.

Before 59½, the closest thing to an age-based exception is the Rule of 55. If you leave your job during or after the calendar year you turn 55, you can take penalty-free withdrawals from the 401(k) held by that employer.² It only reaches the plan tied to the employer you just separated from. Balances still sitting in a previous employer’s plan or in an IRA don’t qualify unless you rolled them into your current plan before you left.

Certain public safety workers get an earlier version of this. Federal law enforcement officers, firefighters (including private-sector firefighters), corrections officers, customs and border protection officers, and air traffic controllers can use the separation-from-service exception starting at age 50 or after 25 years of service under the plan, whichever comes first.³

Health-Related Exceptions

Total and Permanent Disability

If a physician certifies that you cannot do any substantial work because of a physical or mental condition expected to last indefinitely or result in death, distributions are penalty-free with no dollar cap.²

Terminal Illness

A separate exception, added by the SECURE 2.0 Act, applies when a physician certifies a condition reasonably expected to result in death within 84 months.⁴ It has its own certification requirements and is distinct from the disability exception.

Unreimbursed Medical Expenses

You can pull money out penalty-free to cover medical costs your insurance did not pay, but only to the extent those costs exceed 7.5% of your adjusted gross income for the year.⁵ With an AGI of $80,000 and $10,000 in unreimbursed bills, $4,000 qualifies (the amount above the $6,000 threshold). You don’t have to itemize on your return to use this exception.

Family and Safety

Birth or Adoption

Within one year of a child’s birth or the finalized adoption of someone under 18, you can withdraw up to $5,000 per child without the penalty.³ You have three years to repay the amount into an eligible retirement plan if you want to restore the tax-deferred growth.⁶

Domestic Abuse

Victims of domestic abuse can take the lesser of $10,000 (adjusted for inflation) or 50% of the vested account balance without the penalty, with the same three-year repayment option.⁷

Small Emergencies and Long-Term Care Premiums

Starting in 2024, one penalty-free distribution per calendar year is allowed for unforeseeable or immediate personal or family emergency expenses. The cap is the lesser of $1,000 or the amount by which your vested balance exceeds $1,000.⁸ You can repay within three years; if you don’t, you can’t take another emergency distribution until the next calendar year or until you repay the last one.

Beginning in 2026, another SECURE 2.0 provision lets you take penalty-free withdrawals to pay long-term care insurance premiums. The annual cap is the lesser of your actual premium, $2,600 for 2026 (adjusted for inflation), or 10% of your vested balance.

Divorce (QDRO)

When a court issues a Qualified Domestic Relations Order in a divorce, the alternate payee who receives the funds can take a distribution without the 10% penalty regardless of age.³ Ordinary income tax still applies. This exception is specific to employer plans like 401(k)s; IRAs handle divorce transfers under different rules.

Death, IRS Levies, and Federally Declared Disasters

If the account holder dies, beneficiaries and the estate receive distributions penalty-free no matter the participant’s age.² Income tax still applies to whoever receives the money.

If the IRS levies your 401(k) to collect unpaid taxes, the 10% penalty is waived on the seized amount.² Income tax on the distribution still applies.

Residents of a federally declared disaster area can withdraw up to $22,000 without the penalty, provided the distribution is made within 180 days of the qualifying disaster dates set by SECURE 2.0.⁹ The income tax on the withdrawal can be spread over three years, and the amount can be repaid within that same window to eliminate the tax entirely.

Substantially Equal Periodic Payments (72(t))

If nothing else fits, you can set up a series of substantially equal periodic payments, known as a SEPP or 72(t) plan, and take penalty-free distributions at any age.² Payments are calculated using your life expectancy under one of the IRS-approved methods.

The trap is the commitment. Payments must continue for at least five full years or until age 59½, whichever period is longer. Change or stop them before then and the IRS retroactively applies the 10% penalty to every distribution you took under the plan, plus interest.¹⁰ SEPP works for steady multi-year income; it is the wrong tool for a one-time need.

A 401(k) Loan Is Often the Cheaper Route

If your plan permits loans, borrowing from your 401(k) avoids both income tax and the 10% penalty as long as the loan meets federal requirements.¹¹ The maximum is the lesser of $50,000 or 50% of your vested balance, with a floor of $10,000.¹² Repayment runs about five years through roughly equal quarterly payments, longer for a primary-residence loan. Miss the schedule or leave your employer with a balance you don’t repay, and the outstanding amount becomes a taxable distribution that can trigger the 10% penalty.

Exceptions That Don’t Work for 401(k)s

Two well-known penalty exceptions are IRA-only: first-time homebuyer expenses (up to $10,000) and higher education costs.³ A 401(k) distribution for either purpose gets the 10% penalty unless a different exception fits. Rolling 401(k) money into an IRA first and then taking an IRA distribution can work, but rollovers may not be available while you still work for the plan sponsor.

Your Plan Sets Its Own Menu

Federal law defines the exceptions; your employer’s plan document decides which distribution types are actually available.¹³ Plans can restrict in-service withdrawals and often don’t offer every newer exception the tax code allows. Check your Summary Plan Description or ask the administrator before you plan around a specific distribution type.

Watch the difference between a hardship withdrawal and a penalty exception. A hardship withdrawal is a plan feature for immediate and heavy financial need, but taking one does not by itself waive the 10% penalty.¹³ The penalty is waived only if your situation also matches one of the tax-code exceptions above.

Withholding and How to Claim the Exception

Any distribution you don’t roll directly into another retirement account has 20% withheld for federal income tax, even when a penalty exception applies.¹³ Direct rollovers to another eligible plan or IRA avoid the withholding. States may withhold as well, at their own rates.

You claim the exception on IRS Form 5329, filed with your annual return, using the code that matches your situation: 01 for a Rule of 55 separation, 03 for disability, 19 for a birth or adoption distribution, and so on.¹⁴ If your plan already coded the exception on your Form 1099-R, a separate Form 5329 may not be necessary, but check that the coding is right before you file. An incorrect code is the easiest way to get billed for a penalty you don’t owe.

1
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
2
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: 10-Percent Additional Tax on Early Distributions
3
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Distributions in Case of Birth or Adoption
7
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Distribution in Case of Domestic Abuse
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Distributions for Certain Emergency Expenses
9
Internal Revenue Service. Disaster Relief Frequently Asked Questions – Retirement Plans and IRAs Under the SECURE 2.0 Act of 2022
10
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Change in Substantially Equal Payments
11
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
12
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Loans Treated as Distributions
13
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
14
Internal Revenue Service. 2025 Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts