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401(k) early withdrawal rules: over 10 ways to withdraw penalty-free

Tapping into a 401(k) plan early could come with penalties — unless you qualify for an exception.

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A 401(k) plan is designed to support retirement, which means early withdrawals could incur taxes and a hefty 10% penalty. If you've decided that cost is worth it — and it may be, in some emergency scenarios — here's what you need to know, as well as some exceptions that might allow you to avoid a penalty.

What to know about the 401(k) early withdrawal penalty

If you withdraw money from your 401(k) before age 59 ½, the IRS usually assesses a 10% tax as an early distribution penalty. This early withdrawal penalty is in addition to federal ordinary income taxes . On top of that, your withdrawal may be subject to state taxes, depending on where you live, so check with your state and local tax guidelines if taxes apply.
For these reasons, you may end up withdrawing more than you need from your 401(k) to cover the cost of doing so.
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How to withdraw money penalty-free from your 401(k)

Withdrawing money from your 401(k) early doesn't always come with a steep cost — in some cases, the IRS does allow for penalty-free (though not tax-free) withdrawals. Typically, the reason has to qualify for a hardship or one of the other exceptions below. 

401(k) hardship withdrawals

A hardship withdrawal is a withdrawal due to “an immediate and heavy financial need.” The hardship withdrawal is limited to the amount necessary to meet that need and usually isn't subject to penalty .
Generally, these five things qualify for a hardship withdrawal:
  1. Medical bills for you, your spouse or dependents.
  2. College tuition, fees, and room and board for you, your spouse or your dependents.
  3. Money to avoid foreclosure or eviction.
  4. Funeral expenses.
  5. Certain costs to repair damage to your home.
To make a hardship withdrawal, first check with your employer's plan administrator. They'll decide if you qualify, so you may need to explain why you can't get the money elsewhere.
Most plans typically allow for the withdrawal of 401(k) contributions and any matching contributions from your employer. Your plan may or may not allow you to withdraw investment gains (again, double-check with your plan).
Income taxes may still apply for a hardship distribution. Additionally, you also may not be able to make 401(k) contributions for six months after a hardship withdrawal .

Emergency expenses

A provision in the Secure 2.0 Act now allows for special emergency distributions of up to $1,000 per year. You can withdraw the money penalty-free and repay it over three years. You cannot take any other emergency distributions from the account unless the amount has been repaid .

Other penalty-free exceptions

The IRS may waive the early withdrawal penalty if these scenarios apply :
  • You are terminally ill.
  • You become or are disabled.
  • You gave birth to a child or adopted a child during the year (up to $5,000 per account).
  • You rolled the 401(k) over to another retirement plan (within 60 days).
  • Payments were made to your beneficiary or estate after you died.
  • The money paid an IRS levy.
  • You were a victim of a disaster for which the IRS granted relief.
  • You over-contributed or were auto-enrolled in a 401(k) and want out (within certain time limits).
  • You were a military reservist called to active duty.
  • You leave your job. This works only if it happens in the year you turn 55 or later (50 if you work in federal law enforcement, federal firefighting, customs, border protection or air traffic control).
  • You have to divvy up a 401(k) in a divorce. If the court’s qualified domestic relations order in your divorce requires cashing out a 401(k) to split with your ex, the withdrawal to do that might be penalty-free.
  • You are a domestic abuse survivor. You can withdraw the lesser of 50% of your account or $10,000 (indexed for inflation) if you self-certify that you experienced domestic abuse.
  • You choose to receive “substantially equal periodic” payments. Basically, you agree to take a series of equal payments (at least one per year) from your account. They begin after you stop working, continue for life (yours or yours and your beneficiary’s), and generally have to stay the same for at least five years or until you hit 59½ (whichever comes last). A lot of rules apply to this option, so be sure to check with a qualified financial advisor first.

401(k) to IRA conversions

You might be able to avoid that 10% 401(k) early withdrawal penalty by converting an old 401(k) to an IRA first. Here's how it works:
  • There’s no mandatory withholding on IRA withdrawals. That means you might be able to choose to have no income tax withheld and thus get a bigger check now . (You still have to pay the tax when you file your tax return.) If you’re in a desperate situation, rolling the money into an IRA and then taking the full amount out of the IRA might be a way to get 100% of the distribution. This strategy may be valuable for people in low tax brackets or people who know they’re getting refunds. (See what tax bracket you're in.)
  • School costs could qualify. Withdrawals for college expenses could be allowed from an IRA if they fit the IRS definition of qualified higher education expenses .
» Review our options for the best 401(k) to IRA rollover providers

Consider the costs of cashing out your 401(k)

“Anytime you take early withdrawals from your 401(k), you’ll have two primary costs — taxes and/or penalties — which will be pretty well defined based on your age and income tax rates, and the foregone investment experience you could have enjoyed if your funds remained invested in the 401(k). This total cost should be considered in detail before making early withdrawals,” says Adam Harding, a certified financial planner in Tempe, Arizona.
Avoid making a 401(k) early withdrawal just because you're nervous about losing money in the short term. It's also not a great idea to cash out your 401(k) to pay off debt or buy a car, Harding says. Early withdrawals from a 401(k) should be only for true emergencies, he adds.
Even if you manage to avoid the 10% penalty, you probably will still have to pay income taxes when cashing out 401(k)s. Plus, you could stunt your retirement.
» Run your numbers with our retirement calculator

Frequently asked questions

Can I take a loan from my 401(k) instead?

Whether you can take a loan from your 401(k) depends on your employer plan rules. According to the IRS, the maximum amount you can borrow from your plan is 50% of its vested account balance or $50,000, whichever is less .
» What to know about 401(k) loans

How much will I actually get if I cash out my 401(k)?

If you make an early withdrawal of your 401(k), you’ll probably receive less cash than you might expect due to penalties, fees and withholdings. With fewer funds left in the account, you’ll also likely miss out on future returns.
» Estimate how much you might receive with our early 401(k) withdrawal calculator

What proof do I need to show to qualify for a 401(k) hardship withdrawal?

Your plan provider might require invoices or bills, as well as bank statements showing current account balances.
In some instances, you can self-certify instead of providing documents. By self-certifying, you verify that your withdrawal amount is for a qualified “safe harbor” hardship, that the withdrawal amount is only enough to meet the financial need, and that you have no other alternative .
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