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What Is the 401(k) Withdrawal Age?

To avoid higher tax rates and significant penalties, make sure you know what age you must reach before you withdraw from your 401(k) plan.

Written by Hilary Collins / July 13, 2022

Quick Bites

  • At 59 ½, you’re officially retirement age and can withdraw from your 401(k), no questions asked.
  • At 55, if you leave the job that hosts your 401(k) plan, you can withdraw early without penalty.
  • Age 72 is when you have to start withdrawing from your 401(k) account or risk being penalized.
  • If you withdraw from your 401(k) plan earlier than allowed, you’ll have to pay a hefty penalty in addition to taxes. That’s why knowing your withdrawal age is so important.

As you look towards retirement, you might be wondering when you can finally access the savings in your 401(k) plan. If you don’t know, you’re in good company—63% of Americans don’t understand how 401(k)s work.[1] However, the rules around withdrawal are fairly straightforward.

Your 401(k) plan is a place where you can save money without it being taxed—it goes straight from your paycheck into your account. Instead, you pay taxes when you withdraw the money from your 401(k). The IRS penalizes you for withdrawing from your 401(k) before you reach retirement age. This means not only paying a 20% tax rate, which might be higher than what you would pay in retirement, but also a 10% fee.[2]

What Is a 401(k)?

What Is a 401(k)?

A 401(k) is the most popular employer-sponsored retirement plan. Find out how to use this tool to reach your retirement goals.

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To avoid that fee and a potentially higher tax rate, you should wait to withdraw from your 401(k) until you reach retirement age. Let’s take a look at what age that is.

What is the 401(k) withdrawal age?

The 401(k) withdrawal age is the age at which you no longer have to pay penalties to withdraw from your retirement plan. There are three important ages that impact your 401(k) access to consider:

  • 55: This is early retirement age, but it only applies in the specific scenario that sometime between the beginning of the calendar year you turn 55 and the age of 59 ½, you are laid off or quit the company affiliated with your 401(k) plan. If you meet these criteria, you can withdraw from your plan without the 10% penalty.

  • 59 ½: This is the standard age at which you can withdraw from your 401(k) account without penalties.[3]

  • 72: This is when you have to withdraw from your 401(k) plan. Starting April 1 in the year you turn 72, you will have to take required minimum distributions (RMDs) from your 401(k) or face stiff penalties from the IRS.[4] This age was previously 70 ½, so if you were born before July 1, 1949, 70 ½ is when you have to begin taking RMDs.

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    Required Minimum Distribution, or RMD, Explained

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Understanding 401(k) required minimum distributions

The year that you turn 72, you must take a minimum amount set by the IRS from your 401(k) plan. The IRS enforces stiff penalties for not taking the required minimum distribution every year.

Tip

Your half birthday is six months after your birthday. If you were born on May 10, you will turn 70 ½ six months after you turned 70—on November 10.

Starting April 1 the year you turn 72, you have to start taking RMDs, even if you haven’t retired. If you don’t, you’ll have to pay a 50% tax on the amount you should have taken. The amount of your RMD will depend on the balance in your account and your age. The IRS offers a worksheet to help you calculate your RMD each year.[5]

Other exemptions to the early withdrawal penalty

The IRS notes that there are other situations that would qualify you to withdraw from your (401)k without penalty. Here are some of the major ones:

  • You (the account holder) die

  • You’re permanently disabled

  • You have unreimbursed medical expenses

  • You're in the military reserves and are called to active duty

With the 10% penalty and taxes, early withdrawals from your 401(k) can severely deplete your retirement savings. Once you know the rules surrounding withdrawals, you can make smart financial choices and avoid losing a big chunk of your savings to the IRS.

FAQ

What is a 401(k)?

A 401(k) is a workplace retirement plan that allows you to save by having a set amount deducted from your paycheck before taxes.

What’s the 401(k) early withdrawal penalty?

Because 401(k)s are intended to be used as retirement savings, the IRS charges a 10% penalty for early withdrawals. Outside of a few specific scenarios, withdrawals before you reach the age of 59 ½ are penalized.

Article Sources
  1. “Nearly two-thirds of Americans are confused about this simple way to save for retirement,” March 7, 2019, CNBC. https://www.cnbc.com/2019/03/07/63-percent-of-americans-are-confused-about-401k-retirement-plans.html
  2. “Retirement Topics - Exceptions to Tax on Early Distributions,” April 7, 2022, Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions
  3. “401(k) Resource Guide - Plan Participants - General Distribution Rules,” Jan. 20, 2022, Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules
  4. “Retirement Topics — Required Minimum Distributions (RMDs),” April 27, 2022, Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  5. “Required Minimum Distribution Worksheets,” April 27, 2022, Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets

About the Author

Hilary Collins

Hilary Collins

Hilary is an experienced finance writer with a passion for turning complicated topics into readable stories with real-world takeaways.

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