Q:

When can you start withdrawing money from a 401(k)?

A:

Quick Answer

Penalty-free withdrawals are available from 401(k) plans at the age of 55. To utilize this provision, a person must stop working no earlier than the year they turn 55.

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Full Answer

There are two ways to end up voiding the 401k liquidity at age 55. If someone retires at age 54, but then waits until age 55 to make a withdrawal from the 401(k), the liquidity provision no longer applies, and the withdrawal is subject to a 10 percent penalty. The other way to void the provision is by rolling the 401(k) over to an IRA. The earliest age to withdraw money from an IRA without penalty is 59 and a half.

People who keep funds in their 401(k) and do not withdraw them to an IRA can withdraw without penalty at age 59 1/2 if they are retired. If they are still working and have an old 401(k) from a company other than their current one, they can access these funds at this time as well.

At age 70 1/2, required minimum distributions from 401(k) plans begin. If the person is still employed by the company that maintains the 401k plan, the person must apply for an exemption to avoid the distribution.

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