You can start withdrawing money from your 401(k) penalty-free once you reach age 59½. However, if you withdraw money before that age, you will have to pay a 10% early withdrawal penalty, in addition to any applicable income taxes. There are some exceptions to this rule, such as if you are disabled, or if you are using the money to pay for qualified medical expenses or higher education costs.
Early Withdrawal Penalty
Withdrawing money from your 401(k) before age 59½ typically triggers a 10% penalty tax on top of any ordinary income taxes. Additionally, some plans assess an early withdrawal charge of up to 10%, further reducing your funds.
Age 59½ and Beyond
Once you reach age 59½, you can withdraw money from your 401(k) without the early withdrawal penalty. However, you will still owe ordinary income taxes on the withdrawn funds.
Required Minimum Distributions (RMDs)
Starting at age 72 (73 if you turned 70½ after 2019), you must start taking Required Minimum Distributions (RMDs) from your 401(k) each year. These withdrawals are subject to ordinary income taxes.
5-Year Rule
If you separate from service before age 55, you may withdraw funds without the 10% penalty under the 5-year rule. However, you must adhere to the following:
- You must have worked for the employer sponsoring the plan for at least 5 years
- The distribution must occur within 5 years of your separation from service
Roth 401(k)
Roth 401(k) contributions are made after-tax, so you can withdraw them tax-free at any age without penalty. However, any earnings must follow the same rules as traditional 401(k) withdrawals.
| Age | Early Withdrawal Penalty | Required Minimum Distributions (RMDs) |
|---|---|---|
| Before 55 (5-year Rule) | Yes, unless you meet exceptions | No |
| Before 59½ | Yes, unless you meet exceptions | No |
| 59½ and Beyond | No | No |
| 72 | No | Yes |
Alright folks, I hope this article has shed some light on when you can start dipping into that sweet 401(k) honey pot. Remember, the earlier you start planning, the sweeter the rewards will be. Thanks for taking the time to read, and don’t be a stranger—come back later for more financial wisdom and insights. Until then, keep saving, keep investing, and keep living life to the fullest!