My company offers a 401k 50% match up to 6% of salary, but I'm restricted to picking one of a set of investment portfolios.

My thinking is, could I max out the 6% every year, get the full 50% match, and then withdraw at the end of each year for the 10% penalty? Given a 50k salary, that would be 3k that I'd invest, 1.5k match = 4.5k total, and the 10% penalty would still give me 4.05k, or a 35% yearly return that I could immediately move to my regular investment account with full flexibility.

Good idea, bad idea? What am I missing?

  • 2
    If I'm not mistaken, you'd also have to pay income tax on top of the penalty, unless you just flipped it into an IRA or something similar.
    – jamesqf
    May 20, 2015 at 21:58
  • I don't mind paying the income tax, my tax bracket won't change much year to year and I'd be paying income tax anyway if I didn't do the 401k. May 20, 2015 at 22:23
  • 1
    Is your company match not subject to a vesting schedule? At most companies, the match they give you is only, say, 20% available immediately. After another year at the company, 40% is available. Then 60%, etc.
    – dg99
    May 20, 2015 at 22:39
  • I could have sworn that we all enjoyed a similar question not too long ago Can I contribute to a 401k for employer matching and then immediately withdraw it?, and so I voting to close this as a duplicate. May 21, 2015 at 0:24

3 Answers 3


You are not allowed to take a routine 401(k) withdrawal each year. There are specific reasons that you might be allowed to take a withdrawal and what you're proposing doesn't fit into those categories.

  • Some 401(k) plans allow for an in-service withdrawal, but I have found it to be a rare thing indeed.
    – mwp
    May 20, 2015 at 22:14
  • 2
    This is a bit vague. One interpretation of "not allowed" is "if you do it, you pay a 10% penalty", but the question has already taken account of that. What would be the actual consequences of doing what the question suggests?
    – BrenBarn
    May 20, 2015 at 22:15
  • 4
    No. Here, I mean there is no mechanism to do so. One would need to claim financial hardship, and even then, the company is not required to allow withdrawal of the matched funds, May 20, 2015 at 22:21

Are you very certain that your regular investments will produce >10% above and beyond what can be created from your 401(k) plan?

Unless you have a monumentally terrible selection of funds with massive fees you would need to be a truly exceptional investment genius to consistently beat the 10% penalty hurdle. Also, losing the tax-deferred growth for your money is a large additional hurdle meaning that your investment skill would have to be near Warren Buffet levels to just break even.

That 10% + tax-deferral is easy free money just like the 50% match. Wait for a few years until you switch jobs and roll the money into an IRA and you will have full control and a lot more money. Taking the penalty is a bad idea.


Bad idea. If you lose your job and need to pay medical expenses, you can withdraw penalty-free. If you lose your job and just withdraw, you will have lower income and lower tax, though you will pay a penalty.

If you don't lose your job today, consider your 401(k) an additional protection, just in case you do lose it tomorrow. Just pick the least risky investment option and relax.

Besides, it will diversify your investment and protect you from your own investment decisions. If you are so ready to take a 10% loss, you are likely not so skilled in this area, so it's good to have a backup plan.

But of course, do contribute 3% so you get a match.

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