When Can I Take an In-Service Withdrawal from my 401(k)?
With continuing economic uncertainty, it’s not surprising that the number of employees who need to dip into their 401(k) and other company plan funds is on the rise.
Congress originally set strict limits on the ability of employees to make in-service plan withdrawals. This reflected the belief that retirement plan funds should be saved for retirement. In recent years, however, Congress has created a number of exceptions to the no-withdrawal rule for certain specified reasons. Yet there are still significant barriers to getting money out while still working. And plans are always free to apply even stricter rules than those required by Congress. So, check your plan written summary or ask your plan administrator or HR rep for the particular withdrawal rules that apply to your plan.
Pre-tax and Roth Elective Deferrals
Generally, you can’t withdraw from your pre-tax or Roth elective deferral accounts in your 401(k), 403(b) or 457(b) plan before age 59½ if you’re still working. But, assuming the plan permits it, you can withdraw before that age to cover medical and other hardship expenses, in case of disability, birth or adoption or IRS levy, or if you are an active reservist. Your plan may also allow pre-59½ SECURE 2.0 withdrawals (discussed below).
After-tax Contributions
Some plans offer after-tax (non-Roth) employee contributions. If yours does, you may be able to make in-service withdrawals from your after-tax account at any time, even before age 59½. This would be especially helpful if you wish to use the “Mega Backdoor Roth” strategy to convert after-tax contributions to Roth IRAs.
Employer Contributions
If your plan allows matching or nonelective (across-the-board) employer contributions, it probably follows the same in-service withdrawal rules for those accounts that it uses for pre-tax and Roth deferral accounts. This means you likely won’t be able to access your employer contribution funds while still working until you turn age 59½. But some plans are more liberal and allow withdrawals at a specified age (even earlier than 59½), after at least five years of plan participation or after the contribution has been in the plan for at least two years.
Rollover Contributions
Your plan might allow you to roll over pre-tax retirement accounts, including IRAs, into the plan. If so, you may be able to make an in-service withdrawal from your rollover contribution account at any time, regardless of your age or service. But this is not mandatory and here again, your plan may apply the stricter limits that apply to in-service withdrawals of pre-tax and Roth elective deferrals.
SECURE 2.0 Withdrawals
The 2022 SECURE 2.0 Act added several new in-service withdrawals that can be taken from retirement plans at any age. However, your plan is not required to offer any of these new withdrawal options. Withdrawals are now available for: federally-declared disaster expenses, terminal illness, victims of domestic abuse, and emergency expenses. (In-service withdrawals to pay for long-term care premiums become available in 2026.) Note that withdrawals for terminal illness are only available if you are otherwise eligible for a withdrawal (for example, because of financial hardship).
Taxation
Keep in mind that in-service withdrawals of retirement plan funds may be taxable. However, in most (but not all) cases, you won’t be hit with the 10% early distribution penalty for withdrawals before age 59½.
By Ian Berger, JD
IRA Analyst
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.
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