You can generally start withdrawing from your 401(k) account penalty-free at age 59½. Before this age, withdrawals usually incur a 10% early withdrawal penalty along with ordinary income taxes. However, there are exceptions to this rule:
- The IRS "Rule of 55": If you leave your job during or after the calendar year you turn 55, you can withdraw from the 401(k) tied to that employer without the 10% penalty, though you still pay income taxes. For certain public safety workers (such as police or firefighters), this age cutoff is 50.
- Hardship Withdrawals: Some plans allow withdrawals for immediate and heavy financial needs like medical expenses, disability, or avoiding foreclosure, but these still may be subject to taxes and sometimes penalties depending on the situation.
- Other IRS exceptions include disability, certain medical expenses, disaster recovery, and adopting or birthing a child, which may allow penalty-free withdrawals before 59½.
If you can wait until age 59½, withdrawals are penalty-free, though still subject to income tax. Keep in mind you usually must withdraw funds starting at age 73 due to required minimum distribution rules (not covered here but relevant for later). In summary, the standard penalty-free withdrawal age is 59½, but the Rule of 55 allows earlier penalty-free withdrawals if you separate from your employer at or after age 55 (or 50 for some public safety roles). Hardship and other IRS exceptions may also apply depending on your circumstances.
