I have some friends who work at a company which offers 50% 401k matching up to some amount, but they don't take advantage of it because they want to use the money for non-retirement purposes. Ignoring the problems with not saving for retirement, it seems like they're leaving money on the table. Can't they just contribute to their 401k up to the matching limit, then immediately withdraw it? I know there's a 10% early withdrawal penalty, but as long as the match is more than 11.1̅%, it seems like it would always be worth it.

Is there any reason this won't work, like limits to how soon you can withdraw from an 401k, or how you withdraw from it?

I know that you have to pay income tax on the money you withdraw, but you'd have to pay it either way so I don't think it's relevant.

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    There's the penalty, and the tax they should have paid which they'll also have to pay. Apart from that, it still seems like they're leaving money on the table.
    – Peter K.
    Commented Mar 19, 2015 at 20:36
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    You, or your friends, need to read the information provided by the 401k plan about non-qualified withdrawals (those that will be subjected to 10% penalty plus income tax) as well as how vesting works in the plan under consideration. Commented Mar 19, 2015 at 21:30
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    I know that you need to pay income tax when you withdraw it, but you'd pay the same tax either way. Commented Mar 19, 2015 at 22:21
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    Most 401k plans do not allow you to withdraw money while still employed at the company.
    – user102008
    Commented Mar 19, 2015 at 22:22
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    @DilipSarwate, your comment should be converted to an answer. It covers everything.
    – Kent A.
    Commented Mar 19, 2015 at 22:25

2 Answers 2


You cannot withdraw funds from a 401(k) while still employed with your company. To access your contributions, that would be treated as a loan against the 401(k), in which case you'd pay an upfront fee, and then have to repay the amount loaned, plus interest, over a set period of time. (In essence, you are paying back yourself.) Typically, there is also a minimum amount you must take out as a loan. Should you leave the job and still have an outstanding loan against your 401(k), it will be treated as a withdrawal after a certain date, at which point a 10% penalty plus taxes applies, unless you pay back the full amount of the loan remaining before that certain date.

Your friends should seriously consider contributing the minimum amount necessary to get that full 50% matching amount. It's free money. As you said, it's like leaving money on the table.


Some 401k matching is not 100% yours immediately on deposit, depending on the plan. Some matching plans have a vesting period where the funds must stay in the account and you must remain employed before they are considered yours.

Ensure that there is no vesting schedule tied to the matched portion. Contributions from your paycheck are 100% yours no matter what.

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