I will be turing 55 this year in November. I got laid off 2 weeks ago (April 4, 2016). I worked in New York City and live in NJ. Can I withdraw my 401k without penalty?

3 Answers 3


Yes, I think you will be able to withdraw from your 401(k) without penalty.

Normally, you need to be age 59½ before you can withdraw without incurring a 10% penalty. However, an exception to this rule is described in an IRS 401(k) Resource Guide:

Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances:

  • Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.

What this means is that if you leave the company that you have the 401(k) with in the calendar year that you turn 55 (or later), you can take early distributions from the 401(k) without penalty. This year is the year that you turn 55, so it appears that you are eligible for early distributions under this rule.

  • Thanks Ben, I see some people below saying that I would be restricted to periodic disbursements rather than a lump-sum withdrawal of all my money. Is this true? Am I only eligible for periodic disbursements? Apr 12, 2016 at 22:37
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    @Doublespeed As I understand it, the "series of substantially equal periodic payments" exception that the others are talking about has to do with buying an annuity inside your 401(k). You can use a different exception: the age 55 rule. I think you can withdraw as much as you want. Of course, you will need to pay tax on whatever you withdraw, so keep that in mind. The 401(k) administrator/HR department should be able to answer specific questions for you, as rules can vary between different plans.
    – Ben Miller
    Apr 13, 2016 at 4:29
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    It's important to note that if you roll your 401(k) over to an IRA, this exception will no longer apply. You need to keep it in the same 401(k) account to avoid the penalty. Apr 13, 2016 at 14:48
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    Substantially Equal Periodic Payments does not having anything to do with an annuity inside a 401K. It has to do with the ability to withdraw money from a 401k (or IRA) if it is done in the proper manner. irs.gov/Retirement-Plans/…
    – SeraM
    Apr 13, 2016 at 15:09

Probably not. In general, if you withdraw money from a 401k before age 59 1/2, you must pay a 10% penalty.

There are some special cases. You can withdraw money to pay certain unreimbursed medical bills, if you are disabled, or to pay back taxes. You can also withdraw money if you are dead. See https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Tax-on-Early-Distributions.

There is also a provision that you can make penalty-free withdrawals as long as you take them regularly: "Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.)" See https://www.irs.gov/Retirement-Plans/Plan-Sponsor/401(k)-Resource-Guide-Plan-Sponsors-General-Distribution-Rules.

(I don't quite understand this rule. You can't take money out one time, but you can take money out multiple times. Oh well. I think the idea is supposed to be that you can take out money for an early retirement.)

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    "I think the idea is supposed to be that you can take out money for an early retirement." is accurate, the idea being "I have $100 Million in my 401k at 30, I think I can safely retire now." Should be allowed, but they put a time restriction (and income from other sources I think) so you don't suddenly decide to un-retire (i.e. abuse the purpose of the account)
    – Sam
    Apr 12, 2016 at 20:51

If you plan on retiring now you probably can, as Jay mentioned there is a provision in the law for early retirement, as long as you take annual distributions.

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