IRA and 401(k) withdrawal rules: Age, taxes and penalties

IRAs and 401(k)s offer valuable tax benefits. But if you take money out too soon, you may owe taxes, a 10% penalty, or both. The rules depend on your age, your account type, and whether your plan allows the withdrawal.

Here’s how IRA and 401(k) withdrawals work, when exceptions may apply, and what to check before you act.

IRA vs. 401(k) withdrawal rules at a glance

Different accounts follow different withdrawal rules. Use this table to compare when taxes apply, when the 10% early withdrawal penalty may apply, and whether required minimum distributions come into play. If you’re deciding whether to take money out now, start here.

How withdrawal rules differ by account type

IRAs and 401(k)s both help you save for retirement with tax advantages, but they follow different withdrawal rules. The account type affects when you can take money out, how it’s taxed, and whether a penalty may apply.

 Here's a closer look at each one.

Traditional IRA withdrawal rules

You generally pay ordinary income tax when you withdraw money from a traditional IRA. For account withdrawal purposes, IRS rules state that retirement age is 59 ½. Pull money out before that age, and you'll generally face a 10% early withdrawal penalty on top of the income tax.

Once you reach age 59 ½, the 10% penalty generally goes away. You'll still owe ordinary income tax on each withdrawal. And starting at age 73, you must take required minimum distributions (RMDs) each year.

Roth IRA withdrawal rules

Roth IRA withdrawal rules are more flexible than the rules for traditional IRAs. In most cases, you can withdraw your contributions at any time without taxes or penalties because you already paid tax on that money.

Earnings are different. If you withdraw Roth IRA earnings before age 59 ½ and before the account satisfies the five-year rule, you may owe taxes, the 10% penalty, or both.

Roth IRAs do not have required minimum distributions during the owner’s lifetime, which can make them more flexible in retirement planning.

Understanding the Roth IRA five-year rule

The Roth IRA five-year rule determines when you can withdraw earnings tax- and penalty-free. This rule requires that at least five years must pass between January 1 of the year of your first contribution and when you withdraw earnings.

To pull earnings tax- and penalty-free, two things generally need to be true:

• You're at least 59½

• The account has been open for at least five years

There's also a separate five-year rule for Roth conversions. If you convert money from a traditional IRA to a Roth IRA, you need to wait five years before withdrawing those converted amounts penalty-free, regardless of your age. Each conversion starts its own five-year clock on January 1 of the conversion year.

Traditional 401(k) withdrawal rules

Withdrawals from a traditional 401(k) are generally taxed as ordinary income, like a traditional IRA. If you withdraw before age 59½, the 10% early withdrawal penalty also usually applies.

In contrast to a traditional IRA, a traditional 401(k) follows an employer’s plan withdrawal rules, which may allow loans, hardship withdrawals, or certain in-service distributions. Check your Summary Plan Description to confirm what your plan permits.

RMDs typically begin at age 73.

Roth 401(k) withdrawal rules

Qualified withdrawals from a Roth 401(k) are generally tax-free, but earnings can be taxed or penalized if the withdrawal isn’t qualified. As with a traditional 401(k), other withdrawals may be permitted based on an employer’s plan rules.

The five-year rule applies here, too. Earnings withdrawn before age 59½ and before the account satisfies the five-year holding period may face taxes and the 10% penalty. Like Roth IRAs, Roth 401(k)s have no RMDs during your lifetime.

Taking money out before age 59½: Hardship withdrawal vs. penalty exception

Taking money from a retirement account before age 59½ usually comes with income taxes and a 10% early withdrawal penalty. But two separate rules matter:

• Does your account allow the withdrawal? Your plan may have specific rules about when and why you can access funds.
• Does the IRS waive the penalty? Even if your plan permits a withdrawal, you may still owe the 10% penalty unless an exception applies.

This distinction is especially important when comparing 401(k) hardship withdrawals with early withdrawal exceptions.

What is a hardship withdrawal?

A hardship withdrawal is an employer plan rule. It decides whether your 401(k) lets you take money out for an urgent need. The tax code sets the framework, but your employer's plan decides if it's offered.

What is a penalty exception?

A penalty exception is a tax rule, which decides whether the IRS waives the 10% early withdrawal penalty.

In short: Your plan may allow the withdrawal, but the IRS may still charge the penalty. 

Hardship withdrawals from a 401(k)

A hardship withdrawal is a distribution from a 401(k) or similar employer plan taken to satisfy an immediate and heavy financial need.

Hardship withdrawals are a feature of 401(k) and other employer plans, not IRAs. The IRS sets the ground rules, but your plan decides whether to offer them. Your first step is to confirm whether your plan allows hardship withdrawals.

If it does, two conditions determine what you can take out:

• You need to show an immediate and heavy financial need
• The amount you withdraw can't exceed what it takes to meet that need

When a hardship withdrawal may be allowed

The IRS recognizes specific reasons as qualifying needs. Your plan may follow this list closely:

• Medical bills not covered by insurance
• Tuition and related education costs
• Costs to buy a primary residence, not including regular mortgage payments
• Money to prevent eviction or foreclosure on your main home
• Funeral and burial expenses
• Repairs to your primary residence after casualty damage
• Losses tied to a FEMA-declared disaster

See the IRS list of early distribution tax exceptions.

Hardship withdrawals are still taxed

Here's the part many people miss: a hardship withdrawal isn't a free pass on taxes or penalties. You'll still owe ordinary income tax on the money. And if you're under age 59½, the 10% early withdrawal penalty generally applies too, unless a separate penalty exception covers your situation.

Unlike a 401(k) loan, you don't pay this money back, and you generally can't roll it over.

Early withdrawal exceptions: When the 10% penalty may not apply

Take money from a retirement account before age 59½, and the IRS usually adds a 10% penalty on top of income tax. But there are IRS exceptions that waive that 10% penalty.

An important distinction is that these exceptions waive the penalty, not the income tax. You'll still owe ordinary income tax on pre-tax amounts.

Which exceptions you can use depends on your account type. Here's how they break down.

Early withdrawal exceptions that apply to both IRAs and 401(k)s

These cover a wide range of life events:

• Disability. If you become totally and permanently disabled, you can withdraw from your account at any age without the penalty.
• Death. Beneficiaries can withdraw funds from an inherited account penalty-free, no matter the owner's age at death. Inherited IRA withdrawal rules may vary based on the beneficiary's relationship to the original owner and when the account was inherited.
• Birth or adoption expenses. You can withdraw up to $5,000 penalty-free for each eligible birth or adoption.
• Federally declared disasters. You can withdraw up to $22,000 penalty-free if your principal residence is in a federally declared disaster area and you've suffered an economic loss. The withdrawal must occur within 180 days of the declaration. You can spread the income across three years for tax purposes and repay within three years.
• Domestic abuse. A SECURE 2.0 Act provision allows up to $10,000 penalty-free for victims of domestic abuse.
• Certain medical expenses. These are defined as qualified medical expenses that exceed 7.5% of adjusted gross income.
• Health insurance while unemployed. This applies if you've received unemployment compensation for 12 straight weeks under a federal or state unemployment compensation law.
• Certain military reservists. This includes qualified military reservists called to active duty for at least 180 days or for an indefinite period.
• Qualified emergency expenses. SECURE 2.0 added one penalty-free distribution of up to $1,000 per year for an unexpected personal or family emergency. You may repay it within three years.
• Qualified long-term care. A newer provision allows withdrawals of up to $2,600 in 2026 (adjusted annually for inflation) to pay qualified long-term care insurance premiums. The withdrawal cannot exceed 10% of your vested account balance. Not all plans offer this option, so check with your plan administrator.

Exceptions that apply only to IRAs

These exceptions apply to IRAs but not 401(k)s:

• First-time home purchase. Withdraw up to $10,000 penalty-free toward a qualified first home.
• Higher education expenses. These include tuition, fees, and room and board for the next 12 months of post-secondary education for you, your spouse, or your children and dependents.

Exceptions that apply only to employer plans like 401(k)s

Other exceptions belong to workplace plans:

• Qualified domestic relations order (QDRO). If a court order divides your retirement account in a divorce, the portion distributed to a former spouse or dependent is not subject to the 10% penalty.
• Terminal illness. If a physician certifies that you have a terminal illness (expected to result in death within 84 months), you can withdraw any amount from your account without the 10% penalty.
• The Rule of 55. Leave your job during or after the year you turn 55, and you can take penalty-free withdrawals from that employer's 401(k).

Why plan rules still matter

Some 401(k) exceptions only work if your plan adopts them. The Rule of 55, the emergency expense provision and the long-term care option can all hinge on what your plan permits. Check your Summary Plan Description to confirm what's available.

The Rule of 55 explained

The Rule of 55 may let you take money from your current employer’s 401(k) or 403(b) without the 10% early withdrawal penalty. To qualify, you must leave that employer during or after the year you turn 55. You’ll still owe income tax on the withdrawal.

Keep these limits in mind:

• It applies only to the plan at the job you are leaving
• It does not apply to old 401(k)s from past employers
• It does not apply to IRAs
• Your plan must allow these withdrawals

Rule of 72(t) explained

If you need regular income from your retirement accounts before age 59½ and don't qualify for other exceptions, substantially equal periodic payments (SEPP) under Section 72(t) may be an option.

A SEPP plan allows you to withdraw funds from a retirement account before age 59½ without the 10% penalty by committing to a schedule of substantially equal payments for at least five years or until you reach age 59½, whichever is longer.

The IRS allows three calculation methods:

• Required minimum distribution method. Payments are recalculated annually and tend to be lower.
• Fixed amortization method. Fixed amount each year based on life expectancy tables.
• Fixed annuitization method. Similar to amortization but uses an annuity formula.

This strategy requires careful planning. If you modify the payments before the commitment period ends, you may owe the 10% penalty on all prior distributions, plus interest.

401(k) loan vs 401(k) withdrawal: What’s the difference?

A 401(k) loan lets you borrow from your balance and repay yourself over time. A 401(k) withdrawal permanently removes the money and may trigger taxes and penalties. When facing financial emergencies or cash flow shortfalls, it can be tempting to withdraw from your retirement plan. Before you do so, consider whether a 401(k) loan may be a better option.

Many 401(k) plans allow you to borrow your own money and repay the loan with interest through automatic payroll deductions. You avoid the early withdrawal penalty, keep the tax benefits and keep your retirement plan on track.

However, if you leave your job, voluntarily or not, the loan typically becomes due by your tax-filing deadline. Miss that window and the outstanding balance is treated as a distribution and subject to income tax and the 10% penalty.

Loan limits: 401(k) loans usually need to be repaid within five years unless used to buy a primary residence. The maximum loan amount is $50,000 or 50% of your vested balance, whichever is less. Not all 401(k) plans permit loans, so ask your plan administrator or review the Summary Plan Description to learn more about your plan’s loan provisions.

Withdrawing money from a retirement account early and paying penalties and taxes should be done only after you’ve exhausted every other option, since doing so may have a negative impact on your long-term retirement finances.

Early withdrawal decision checklist

Before you take money from a retirement account, work through this checklist:

1. Check whether your plan or account allows the withdrawal. A 401(k) follows plan rules, while an IRA follows account rules.
2. Confirm whether the IRS waives the 10% penalty. A plan may allow the withdrawal, but that does not mean the IRS waives the penalty. Hardship access and penalty relief are not the same thing.
3. Estimate the tax cost. Traditional account withdrawals are generally taxed as ordinary income. Even some penalty-free withdrawals are still taxable.
4. Compare other options first. Before taking an early withdrawal, consider whether a 401(k) loan or another source of cash could avoid taxes, penalties, or a permanent reduction in retirement savings. 

Frequently asked questions

Is a hardship withdrawal the same as a penalty exception?

No. A hardship withdrawal is a 401(k) plan feature. A penalty exception is an IRS rule that may waive the 10% early withdrawal penalty. One does not automatically trigger the other.

Can you take a hardship withdrawal from an IRA?

No. IRAs have no hardship category. You can withdraw from an IRA at any time, but the usual tax rules still apply.

What qualifies as a hardship withdrawal?

Common qualifying reasons include medical expenses, buying a primary residence, preventing foreclosure or eviction, tuition and funeral costs. For 401(k)s, your specific plan defines which hardships apply.

Do you pay taxes on an IRA withdrawal?

Traditional IRA withdrawals are taxed as ordinary income. Qualified Roth IRA withdrawals are generally tax-free.

What is the penalty for early 401(k) withdrawal?

In many cases, it is a 10% early withdrawal penalty plus ordinary income tax if you take money out before age 59½ and no exception applies.

Can you take a loan from an IRA?

No. IRAs don't allow loans. Proceeds are available for use during a rollover period but must be deposited into a IRA within 60 days of distribution to avoid taxes and penalties. You're limited to one such rollover within any 12-month period.

When do required minimum distributions start?

RMDs for traditional IRAs and many 401(k)s generally begin at age 73. The age increases to 75 for those born in 1960 or later. Roth accounts have no RMDs during the owner's lifetime. Read more about RMD rules and requirements.

Are hardship withdrawals taxed?

Yes. Hardship withdrawals are taxed as ordinary income, and the 10% penalty may still apply unless a separate exception covers your situation.

Is a 401(k) loan better than a withdrawal?

Often, yes. A loan repaid on time avoids taxes and penalties and keeps your retirement savings intact. A withdrawal permanently reduces your balance.

What are 72(t) distributions?

72(t) distributions, also called substantially equal periodic payments (SEPP), allow penalty-free withdrawals before age 59½ if you commit to a schedule of equal payments for at least five years or until you turn 59½, whichever is longer.

Early retirement withdrawals: Seek advice

Understanding the rules around IRAs and 401(k)s withdrawals can help you avoid costly mistakes that could put your retirement security at risk. Your retirement savings work hardest when you let them grow. Early withdrawals, with their taxes, penalties and lost compound growth, should generally be a last resort.

Before you move money, check your plan rules, check the tax impact, compare your options and lean on professional guidance to help you navigate these decisions.

Learn how our approach to financial planning can help you review financial opportunities from all perspectives.

Reviewed against IRS guidance. Plan rules vary by employer, so confirm hardship withdrawals, loans, and other early-access options in your Summary Plan Description.