Rules and Penalties
401k and Roth IRA Withdrawal Rules: Penalties, Exceptions, and RMDs
When you can take money out, what it costs, and the key exceptions. The Roth IRA has a significant withdrawal advantage over the 401k that affects the comparison.
Updated April 2026
Withdrawal Rules at a Glance
| Rule | 401k | Roth IRA |
|---|---|---|
| Penalty-free age | 59.5 | 59.5 (earnings), any time (contributions) |
| Early withdrawal penalty | 10% + income tax on full amount | Contributions: no penalty. Earnings: 10% + tax |
| Income tax on withdrawal | Yes, entire amount | No (qualified withdrawals) |
| 5-year rule | N/A | Account must be open 5+ years for tax-free earnings |
| Required minimum distributions | Starting at age 73 | None, ever |
| Rule of 55 | Penalty-free at 55 if you leave that employer | N/A (already have contribution access) |
| SECURE 2.0 emergency | $1,000/yr penalty-free | $1,000/yr penalty-free |
| Substantially equal payments (72t) | Available, avoids penalty | Available for earnings portion |
The Roth IRA Withdrawal Advantage
One of the biggest advantages of the Roth IRA over the 401k is withdrawal flexibility. You can withdraw your contributions (not earnings) at any time, for any reason, with no penalty and no taxes. This is because you already paid tax on the money when you contributed it.
Roth IRA withdrawal ordering rules
Your contributions
Always tax-free and penalty-free at any age. No exceptions or conditions.
Conversion amounts
Tax-free (already taxed at conversion), but subject to a 5-year holding period for penalty-free access if under 59.5.
Earnings on investments
Tax-free and penalty-free only after age 59.5 and the account has been open at least 5 years. Before that: 10% penalty + income tax.
This means the Roth IRA functions as a partial emergency fund. If you have contributed $50,000 over the years and the account is worth $80,000, you can take out up to $50,000 at any time. The 401k offers no equivalent access without penalties (with limited exceptions).
401k Early Withdrawal: Penalties and Exceptions
Withdrawing from a 401k before age 59.5 normally triggers a 10% early withdrawal penalty plus ordinary income tax on the entire amount. However, several exceptions exist:
Rule of 55
If you leave your job in the year you turn 55 or later, you can withdraw from that employer's 401k without the 10% penalty. Only applies to the 401k at the employer you are separating from, not old 401k accounts.
Disability
If you become totally and permanently disabled as defined by the IRS, early withdrawal penalties are waived. You still owe income tax on the withdrawal.
SECURE 2.0 emergency withdrawal
Starting 2024, you can take up to $1,000 per year for a personal or family emergency without the 10% penalty. Must repay within 3 years or cannot take another emergency distribution.
Substantially equal periodic payments (72t/SEPP)
You can take a series of substantially equal payments based on your life expectancy. Must continue for at least 5 years or until age 59.5 (whichever is longer). Complex rules but avoids the penalty.
Medical expenses over 7.5% of AGI
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income can be withdrawn penalty-free. You still owe income tax.
QDRO (divorce)
Qualified Domestic Relations Orders allow penalty-free distribution of 401k funds to a former spouse as part of a divorce settlement.
IRS levy
If the IRS levies your retirement account, the 10% penalty does not apply. You still owe income tax.
Death
Beneficiaries who inherit a 401k do not owe the 10% early withdrawal penalty regardless of their age. Income tax still applies. Most non-spouse beneficiaries must empty the account within 10 years.
Required Minimum Distributions (RMDs)
401k / Traditional IRA
- RMDs begin at age 73 under SECURE 2.0 (rising to 75 in 2033)
- You must withdraw a minimum amount each year based on your account balance and life expectancy
- Penalty for missing an RMD: 25% of the amount not withdrawn (reduced from 50%)
- RMDs are taxed as ordinary income, potentially pushing you into a higher bracket
Roth IRA
- No RMDs ever for the original Roth IRA owner
- Your money can stay invested and growing tax-free for your entire life
- Inherited Roth IRAs do have distribution rules (10-year rule for most non-spouse beneficiaries)
- Roth 401k: RMDs eliminated starting 2024 under SECURE 2.0 (previously required)
Rollover Options
| From | To | Tax Impact | Notes |
|---|---|---|---|
| 401k | Traditional IRA | No tax (same tax treatment) | Most common rollover when changing jobs |
| 401k | Roth IRA | Taxed as income (Roth conversion) | Triggers taxes on the full amount. Strategic for low-income years |
| 401k | New employer 401k | No tax | Available if new plan accepts rollovers |
| Traditional IRA | Roth IRA | Taxed as income (conversion) | Backdoor Roth strategy uses this path |
| Roth 401k | Roth IRA | No tax | Clean rollover. Recommended when leaving employer |