Can I withdraw my 401(k) early?

1 min readLast updated November 3, 2023by Rachel Carey

This article explains what you need to know about early 401(k) withdrawals and the more cost-effective alternatives.

I need my 401(k) money now – Can I withdraw early? 

Under normal circumstances, the minimum age you can withdraw from a 401(k) is 59 and a half. However, unfortunately, some situations can put huge demands on your finances, and you may want to make an early withdrawal from your 401(k).  

In desperate situations, such as the sudden death of a spouse, an immediate threat to your property or an urgent medical bill, you may think, “I need my 401(k) money now.” If the circumstances meet certain criteria, you may be able to avoid some of the immediate penalties, but your long-term retirement income will still be impacted. 

Withdrawing money early from a 401(k) not only incurs a penalty at the point of withdrawal but will also permanently impact your retirement savings. This means you should think carefully about other options before early withdrawing from a 401(k). 

If you’re considering an early withdrawal from a 401(k), it is highly advisable to talk through your options with a financial expert first in case there’s another way to get the money you need.  

Here’s an overview of what you need to know about early withdrawals from a 401(k).  

Can I withdraw money early from my 401(k)? 

Some employers allow employees to make early withdrawals from their 401(k), if necessary, in certain special circumstances. Not every employer allows it, so you will first have to ask your HR department whether you can withdraw money from your 401(k) before you reach the age of 59 and a half. 

If your employer allows you to make an early withdrawal, you’ll have to fill out some paperwork specifying the type of withdrawal you’d like to make. You might also be asked to provide relevant documents.  

Once all the necessary paperwork is complete and the documents are handed over, you should receive a check for the requested money. 

Remember that withdrawing money from a 401(k) early is a big decision, and you can incur a penalty, so it’s not something you should rush through or take lightly.   

Is there a 401(k) early withdrawal penalty?  

There can be early withdrawal penalties if you take cash from your 401(k). Your 401(k) income is taxed as regular income, but if you are younger than 59 and a half years old, you can also be fined a 10 percent penalty on the amount you withdraw. 

In some cases, you can avoid the 10 percent penalty on the early withdrawal, but you’ll still have to pay income tax.  

To illustrate the point, let’s imagine you need to make an early withdrawal of $10,000 from your 401(k).  

From that $10,000, approximately $6,300 will reach your pocket – after income tax and the early withdrawal penalty. In addition, shrinking the amount in your 401(k) can affect your savings' long-term growth and health. 

How can I avoid the 401(k) early withdrawal penalty? 

Under specific circumstances, you can avoid paying the 10 percent early withdrawal penalty.  

The IRS has guidance for hardship withdrawals, which is an option for people experiencing “immediate and heavy financial needs.”  

The IRS guidance states this legislation covers expenses such as urgent medical care, funeral costs and property payments. You can also withdraw $5,000 from a 401(k) without a penalty if the money is going to costs associated with the birth or adoption of a child. 

Very specific conditions will need to be met to satisfy the IRS guidance, so seek advice from the IRS. You can speak to an IRS agent for free, and they will be able to help you understand whether you are eligible for a hardship withdrawal. 

What are the alternatives to withdrawing my 401(k) early? 

Again, withdrawing from your 401(k) early should be a last resort. If you need some money, other options can help you avoid the heavy financial penalties. 

Some plans allow you to loan yourself cash from your 401(k). This avoids the 10 percent penalty on the withdrawal. You’ll still have to pay regular income tax on the money you loan yourself.  

You’ll pay the amount you’ve borrowed back in installments taken from your paycheck. This means your 401(k) investment will remain intact for longer.  

If you have other savings accounts, withdrawing from them may be more beneficial, as they may not incur a penalty.  

A financial advisor can outline all the alternative options available if you are considering an early withdrawal from your 401(k).  

The bottom line   

So, while making an early withdrawal from your 401(k) is possible, it can incur a penalty and impact the health of your retirement savings in the long term.  

Even if you can avoid the penalty, shrinking the amount you have saved in your 401(k) with an early withdrawal will permanently impact the funds you have available for your retirement. 

If you are considering withdrawing money from your 401(k) early, consider whether a loan from your 401(k) or a personal loan could be a more sensible option.  

A financial advisor can help you decide what is best for you. Find one today with Unbiased.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.