Created: October 21, 2020
Modified: September 9, 2022

Episode 16: Can I Withdraw From My 401(k)?

Thank you for joining us for Episode 16 of our Money Wisdom Question Series, where we film answers to common financial and retirement investment questions. Today’s question is “Can I withdraw money from my 401(k)?”

There are different reasons to make a withdrawal from a 401(k), including:

  1. Taking the money out to spend it (taxable event)
  2. A rollover (non-taxable event)

A Withdrawal and You’re No Longer Working for the Same Employer

If you are no longer working where you had that 401(k), 403(b), or 457 (depending upon who your employer was) you have the ability to roll that money into a traditional individual retirement account (IRA). If you choose to do this, it’s not a taxable event. Why would you roll that money into an IRA? In that IRA, you can invest in anything that you want. Whereas in a 401(k), you have a fairly short list of what you can invest in.

Now, as with anything, not everyone should do this. It’s very specific to your situation, your 401(k), and what you’re trying to accomplish. Just know that if you’ve left the employer, you don’t have to leave the money there, although sometimes you should.

A Withdrawal From Your 401(k) While You’re Still Working

If you’re still working and of a certain age, sometimes that age is 55, 50, or 59 ½, you have something known as an in-service withdrawal available to you. This allows you to continue to work at that employer and save money into that plan but allows you to take other money out of that plan and roll it into an IRA. You do this to gain access to more without paying taxes and usually without paying a fee.

A Withdrawal to Spend Money

In terms of a true withdrawal (when you take money out to spend it), when you are over the age of 55 and no longer working for that employer, there may be options for you. You may be able to draw out money without the IRA penalty, which normally would apply any time before age 59 ½. If you’re not 59 ½ years old and you draw money out, you’re paying all the taxes plus a 10% penalty. You really don’t want to do that, but yes life happens, which brings up a hardship withdrawal. This allows you to waive the penalty for certain things. It might be a health-related issue or a first-time home purchase.

Consider Your Long-Term Financial Goals

There are many different options when accessing money from your 401(k). What you need to always be thinking about is that money is the money you will live on for the rest of your life. If you’re withdrawing it during working years, it won’t be there during your retired years, which is when you very well might need it the most.

Like many things that we talk about, this is very dependent upon your individual situation. There are a lot of options and before doing anything, make sure that you’ve gotten some advice and input. Think about how a withdrawal or rollover would impact your long-term financial plan and what you’re trying to accomplish.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, get our free retirement book, “The Ultimate 401(k) Guide“.

P.P.S. Feel free to submit questions here for a chance to have them answered!

  • Sandy and Thomas C.
    Sandy & Thomas C. are clients of Johnson Brunetti and received no compensation for their statement.

    “We always felt our financial needs were in very capable hands. Alex Angst is great to work with. Our advisor always made us feel he had our best interests at heart and explained things so we could understand them.”

  • Lisa D.
    Lisa D. is a client of Johnson Brunetti and received no compensation for her statement.

    “Working with Johnson Brunetti has had a positive impact on my life by providing me with the knowledge, confidence, and peace of mind to move forward with my retirement plans. The process of getting to this point, through their guidance, has been informative and pleasurable.”

  • Ken D.
    Ken D. is a client of Johnson Brunetti and received no compensation for his statement.

    “I view your company as one that puts my interests first. I think that is very uncommon and very refreshing. “

  • Jeanne P.
    Jeanne P. is a client of Johnson Brunetti and received no compensation for her statement.

    “Matt does an awesome job! So easy to understand and he listens to our concerns and addresses them! happy I chose your firm!”

  • Anonymous
    This testimonial was provided by a client of Johnson Brunetti and received no compensation for their statement.

    “I have been pleased with the help and service I have received from the company. I have met several team members on Eric’s team and have found all of them very well prepared to meet with me when reviewing my portfolio. I always feel that I am an important customer and appreciate that very much. I hope the firm continues to focus on the customer and maintains its great service. I think you do a great job for someone like me!!!! I’m happy I chose your firm!”

Our Locations
Johnson Brunetti
Welcome to Our New Website!
Everything was designed with you in mind, making our retirement planning resources more easily accessible to you.
Check out your new resource center, where everything can be organized by article type or topic
Are you ready to speak with a financial advisor?
Johnson Brunetti

Investment Advisory Services offered through JB Capital, LLC.
Insurance Products offered through JN Financial, LLC.
Atlanta • Boston • Hartford | Tel: 800-208-7233

JB Capital LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.

JB Capital's Form ADV | Disclaimer | Privacy Notice | Client Relationship Summary

*Information about our Affiliation with the UConn Huskies

Johnson Brunetti is a sponsor of WFSB Better Money, WCVB Better Money Boston, WSB-TV Better Money Atlanta, WTNH Money Wisdom, and WTIC Money Wisdom.