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What’s the 59½ rule for early retirement savings withdrawals?

To better understand your retirement savings and your options for when you want to retire, it’s helpful to know the financial impact of early retirement withdrawals before age 59½.
Three women looking at a laptop reviewing the SECURE 2.0 updated rules for 401(k) plans.

There’s no single solution that applies to everyone for when to retire or make a first withdrawal from retirement savings like a 401(k) or an individual retirement account (IRA). But if you’re considering what might work best for you, there is an age you may want to know: 59½.

That’s the IRS baseline for the earliest a person can withdraw from a qualified retirement plan without penalties. However, as with any rule, there are exceptions—and some nuance—that can help you evaluate making an early withdrawal from retirement savings before age 59½.

The 59½ rule for IRAs and 401(k)s

The IRS has established 59½ as the age when you may begin withdrawing, penalty-free, from both IRAs and a 401(k), if allowed by your plan. If you need or want to withdraw funds before that age, this is called an early withdrawal, and you may have to pay a penalty. (See below for an explanation.)

Both these retirement savings were created with funds that hadn’t been taxed, so tax planning is key. If you make withdrawals after age 59½, the original investment and any earnings will be subject to income tax based on your tax bracket. (A tax professional can help with answers specific to your situation.)

What if I need to withdraw from a 401(k)s or IRAs before age 59½?

This is what’s called an early withdrawal. Whether or not you can take funds out of a 401(k) or IRA before age 59½ depends on your plan. And if an early withdrawal is allowed from either your 401(k) or IRA, there will be penalties in addition to taxes.

What are the penalties and taxes for early withdrawals from retirement savings before age 59½?

If you withdraw from either a 401(k) or an IRA before reaching age 59½, you’ll be responsible for:

  • Federal income tax at your current income bracket
  • State income tax, if applicable, at your current income bracket
  • A 10% penalty on the total you withdraw

The difference between withdrawing retirement funds at age 59½ versus younger than 59½

Age &;59½ &;59½
Income tax Yes Yes
&;59½ Yes No

Some exceptions exist to the tax on early withdrawals, including up to $5,000 for the birth or adoption expenses for a child. () And there are some exceptions to the usual early withdrawal penalties: hardship withdrawals, loans, and the rule of 55. (See below.)

What is a hardship withdrawal from retirement savings before age 59½?

The as “immediate and heavy financial need … limited to the amount necessary to satisfy that need.” A hardship withdrawal is money taken out, without the expectation of it being paid back. Examples may be medical care or funeral expenses.

There are several hurdles to clear before you’re able to make a hardship withdrawal prior to age 59½. First, your retirement plan may have restrictions and request verification of both the hardship and of lack of resources to satisfy the financial need. While the typical early withdrawal penalties do not apply, those funds are still subject to federal and state income taxes. And because you’re not required to replace the retirement savings, you may lose any future growth you could have accumulated. To learn more about a possible hardship withdrawal from your plan, contact your human resources department.

What are the requirements for an early withdrawal of retirement funds before age 59½ as a loan?

IRAs do not allow loans, but some 401(k) plans may have this option. Unlike a hardship withdrawal, a loan from retirement savings must be paid back within certain time limitations (generally within five years). There are also usually limits on the loan amount (typically $50,000 or 50% of your vested value). You can find out if your plan allows loans by reviewing your summary plan description.

To find your 51ԹϺ® account documents, log in, then click on “My accounts” on the top menu; scroll down to the 401(k) account button. Then click on “Overview” on the top menu; scroll down to “Plan information & forms” where you’ll see the summary plan description document.

Does the 59½ withdrawal limit apply to Roth IRAs?

As with other retirement savings accounts, a Roth IRA has two types of funds: contributions and investment gains. You may withdraw contributions from a Roth IRA at any time, as long as the account has been open five years. But if you choose to withdraw gains in the Roth IRA before age 59½, the account must have been open five years and you will pay taxes and a penalty of 10%, unless you meet certain exceptions. Those are:

  • You have a disability.
  • The withdrawal is going to a beneficiary or your estate after your death.
  • You are buying, building, or rebuilding a first home, up to $10,000 for a lifetime limit.

What is the rule of 55?

There’s one last exception to the withdrawal rule of 59½: If you leave or are terminated by an employer after age 55, you can take early withdrawals, if allowed by your 401(k) plan, without penalty. (Income taxes still apply.) There are some requirements, however.

  • You must have left or lost your job during or after the calendar year you turned age 55.
  • The withdrawals must be from the 401(k) you were saving in when you left or lost your job, not a previous employer.
  • The funds must remain in the 401(k) until you reach age 59½.

What’s next?

To better understand how withdrawals before or after age 59½ affect you, contact your financial professional or tax advisor. To see the rules regarding withdrawals for your plan, log in to your 51ԹϺ account. If you have additional questions on your retirement plan through 51ԹϺ, contact us at +1-800-547-7754, Monday-Friday, 7 a.m.-9 p.m. CT.

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The subject matter in this communication is educational only and provided with the understanding that 51ԹϺ® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.​