How Do Get My Money Out of My 401(k)?

by Ciaran John

When you withdraw funds from your 401(k) retirement account, you may have to pay fees, income tax and premature withdrawal penalties. Additionally, federal tax rules and employer policies often prevent currently employed individuals from making 401(k) withdrawals. When you leave your job, your retirement accounts become more accessible, although you cannot always avoid the federal tax penalties. Most 401(k) plans are funded on a pre-tax basis, although some companies also offer Roth 401(k) after-tax investment options. If you withdraw money from a Roth 401(k), you must pay taxes only on your account earnings, although your employer can restrict access to the account while you are working.

1. Contact your 401(k) custodian and ask for a plan prospectus or a list that details the rules for in-service withdrawals. Most companies pay brokerage firms to operate 401(k) plans, and you may get the plan operator's contact details from your manager or the human resources department. Under the federal tax code, your plan operator may allow you to take in-service withdrawals, but if your plan includes no such provision you may not access your money until you leave your job.

2. Review the list of withdrawal options to determine whether you are able to access your funds. If your plan includes an option for such withdrawals you may use the money toward the purchase of a first-time home purchase, to cover certain educational costs, to prevent foreclosure or eviction or to pay unreimbursed medical bills. Some firms also allow people over the age of 59 1/2 to make withdrawals if the funds are to be reinvested in other retirement accounts.

3. Authorize your plan custodian to complete the withdrawal by filling out a distribution form. Some companies may process withdrawals based upon verbal instructions. The plan custodian must liquidate your funds at the close of the market and it may take up to a week before you receive the funds in the form of a check or a wire transfer.

4. Provide your plan custodian with supporting documentation to prove that you need the money to cover one of the eligible expenses. Typically, plan custodians require copies of bills or legal documents that are related to your claim. In most circumstances, you must pay a 10 percent penalty tax on funds withdrawn prior to the age of 59 1/2 regardless of the reason for your withdrawal and you will also pay ordinary income tax on the entire withdrawal.


  • If you cannot make in-service withdrawals under your 401(k) plan, you may have the option of taking out a 401(k) loan. Under federal rules, you may withdraw the lesser of $50,000 or 50 percent of your vested funds in the form of a loan. The funds you deposit into a retirement account are immediately vested, but your employer's contributions are often vested over the course of five years. 401(k) loans have a maximum repayment term of five years and the interest you pay on the loan gets deposited back into your own 401(k) account.


  • You may liquidate your 401(k) when you leave your job, although you must pay income tax on the money and you may pay a 10 percent penalty on the withdrawal if you are under 59 1/2 unless you roll it into another tax-sheltered retirement account. However, the IRS waives the penalty fee if you experience a separation of employment after reaching the age of 55, if you become disabled or if you turn your 401(k) funds into a lifetime income stream. When you reach the age of 70 1/2, you must begin to make withdrawals from your 401(k) plan on an annual basis. The withdrawal minimums are based on actuarial calculations, and failure to take the required amount will result in a tax penalty equal to 50 percent of the amount that you failed to withdraw.

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