Penalty-Free Withdrawals From Your 401(k)

I’m 56 and will be leaving my job in a few months. Can I really withdraw money from my 401(k) without penalty after that? I thought the 10% early-withdrawal penalty applied to any 401(k) withdrawals before age 59½.

You generally have to pay a 10% penalty if you withdraw money from your traditional IRA or 401(k) before age 59½. But there’s a special rule for 401(k) plans: If you leave your job in the calendar year you turn 55 or later, you can withdraw money from that employer’s 401(k) without an early-withdrawal penalty.

This rule applies only if you leave your job at age 55 or later. You can still get hit with the 10% early-withdrawal penalty if you withdraw money from another employer’s 401(k) before age 59½ if you left that job before you were 55.

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Also keep this rule in mind when deciding whether to roll money over from a 401(k) to an IRA after you leave your job. If you leave your job at age 55 or older but then roll the 401(k) over to a traditional IRA, you’ll generally have to wait until age 59½ to tap the money without penalty. (There are a handful of exceptions that allow penalty-free IRA withdrawals, such as using the money to pay for health insurance when unemployed or using up to $10,000 for a first-time home purchase.)

For more information, see this IRS Tax Topic fact sheet about the early-withdrawal rules. See IRS Publication 590-B, Distributions from Individual Retirement Arrangements, for more information about the early-withdrawal penalty and exceptions.