How Old Do You Have to Be to Take Money Out of Your 401k?

A 401k plan is a retirement benefit provided to you by your employer. Over time, a 401k plan has the potential to build up a sizable nest egg for your use in retirement so avoid withdrawing from the plan. Penalties can apply to early 401k distributions, along with the taxes associated with all 401k withdrawals. There are a few ways you can take money out of your 401k before you reach retirement age.

Premature Distributions

Generally speaking, you have to be at least 59 1/2 before you can begin taking money out of your 401k. One exception to this rule is if you take out "substantially equal payments" over the course of your life. For example, if you are 30 years old, you can begin taking out $2,000 per year penalty-free for the rest of your life assuming that figure meets the minimum annual threshold determined by the Internal Revenue Service. The IRS has actuarial tables that determine that minimum required annual payment based on your life expectancy. Most other distributions before age 59 1/2 are assessed a 10-percent early distribution penalty. Other exceptions include distributions after age 55 if you leave your job and distributions due to your disability or other severe and immediate financial need.

Loans

If you only need money out of your 401k for a short to intermediate time period, you might consider taking a loan rather than a withdrawal. There are no age restrictions on when you can take a 401k loan, and there are no taxes or penalties applied to the loan. You can typically take out up to 50 percent of your 401k balance, and you don't have to repay it for up to five years. While you pay interest on the loan, you pay both interest and principal back to your own account.

Rollovers

One way to take money out of your 401k plan without taxes or penalties is to roll it over to another account. If you recently left your job, you may not know what to do with the 401k balance you left behind. Rather than taking a distribution and paying taxes and possible penalties, you can roll it over to another tax-deferred account, such as an IRA or another 401k plan. Your rollover will be tax- and penalty-free as long as you complete the transaction within 60 days.

Mandatory Distributions

On the flip side of the minimum age for distributions from a 401k is the maximum age for accumulation. Upon reaching age 70 1/2, you must begin a program of annual distributions from your 401k. As with the calculation for the withdrawal of substantially equal annual payments before age 59 1/2, you must use the IRS life expectancy tables to determine your minimum required distributions after age 70 1/2. Failure to take these distributions is much more significant than taking an early 401k distribution, resulting in a 50-percent penalty for failure to distribute.

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