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In the 401(k) industry, withdrawal refers to the action of taking money out from a 401(k) plan, which is a retirement savings plan sponsored by an employer. It lets workers save and invest a portion of their paycheck before taxes are taken out. Withdrawals can be of several types:

  1. Regular Withdrawals: Typically, 401(k) plans allow for regular withdrawals once the plan participant reaches the age of 59½. Withdrawals made after this age are subject to regular income tax, but not the additional 10% early withdrawal penalty.
  2. Early Withdrawals: If funds are withdrawn before the age of 59½, they are usually considered “early” or “premature” withdrawals and are subject to an additional 10% early withdrawal penalty on top of regular income taxes.
  3. Required Minimum Distributions (RMDs): Starting at age 72 (or 70½ if you were born before July 1, 1949), account holders are required to take minimum distributions from their 401(k) plans. The amount is based on the account balance and the participant’s life expectancy.
  4. Hardship Withdrawals: Some plans allow for a withdrawal if the participant experiences an immediate and heavy financial need, and the withdrawal is necessary to satisfy that need. This could include certain medical expenses, costs related to the purchase of a home, tuition and educational fees, and payments to prevent eviction or foreclosure.
  5. Loans: While not technically a withdrawal, some 401(k) plans allow participants to borrow from their account. These loans must be repaid with interest, typically through payroll deductions.

Each type of withdrawal has specific rules, tax implications, and potential penalties, so it’s important for individuals to understand the terms of their specific 401(k) plan and consult with a financial advisor or tax professional before making a withdrawal.