How to Withdraw From a 401k Without Quitting Your Job

In most cases, 401k plans do not allow withdrawals while you’re still employed by the company offering the plan. 

However, if you need access to your funds and don’t plan to leave your job, there are a few options that may be available depending on your plan provider.

In this guide, we’ll walk you through the most common strategies to access your 401k funds without quitting your job, and what to consider for each one.

How 401k Withdrawal Typically Work

Generally, you cannot withdraw from your 401k plan until age 59½. Early withdrawals may be  subject to ordinary income taxes on the amount withdrawn, plus a 10% early withdrawal penalty.

Withdrawals after age 59½ avoid the penalty, but you’ll still have to pay ordinary income taxes on the amount you withdraw. For a Roth 401k, withdrawals are only tax-free if the distribution is “qualified.” That means the account must have been open for at least five taxable years, and the withdrawal must happen after you turn 59½, become disabled, or pass away (in which case your beneficiaries receive it).

Many plans do not allow in-service withdrawals while you’re still employed. Always check your plan documents or consult your HR department to confirm whether your plan supports early access options.

Alternative Options to Access 401k Funds

If in-service withdrawals are not permitted, some alternative strategies may offer limited access to your 401k savings without leaving your employer. These options come with specific rules and trade-offs.

Option 1: Take a 401k Loan (If available)

A loan from your 401k allows you to borrow up to 50% of your account balance, up to a maximum of $50,000. 

✅ Potentially Tax-Free: If the loan is repaid on time and according to the agreed terms, it is not treated as a taxable distribution and does not trigger early withdrawal penalties.

✅ No Credit Impact: No credit check required and loan does not affect your credit score

✅ Fast Access: Funds are typically available within a few business days.

✅ Flexible Use: You can use the loan for any purpose, with no restrictions.

✅ Easy Process: There is no lengthy application or third-party approval needed since you’re borrowing from your own retirement account.

📝 Note: Like in-service withdrawals, not all plan providers offer the option to take a 401k loan. 

What Are the Interest Rates?

The plan administrator sets the loan’s interest rate, but IRS rules say it must be similar to what a bank would charge for a comparable secured loan. To meet this “reasonable commercial rate” rule, many plans use the prime rate plus one or two percentage points — though the exact formula can vary. 

✏️ Hypothetical Example: If the prime rate is 8.5 percent, your loan interest rate might be 9.5-10.5 percent.

Even though you’re paying interest, that amount usually goes back into your own 401k account. This means you’re essentially repaying yourself, not a bank. 

However, it’s important to understand that these interest payments don’t reduce your loan balance — they’re paid in addition to the loan amount and do not count as principal repayment.

When Do I Have to Repay the Loan?

 401k loans typically must be repaid within five years. However, if the loan is used to purchase a primary residence, the repayment period may be extended up to 15 years, depending on your plan’s terms.

If you quit your job or are terminated before the 401k loan is fully repaid, the remaining balance may become due much sooner. In most cases, your employer may require you to repay the full amount, with interest, by the tax filing deadline of the following year. This could give you only a few months depending on when you leave the company. 

Because of this, it’s generally recommended to take a 401k loan only if you feel confident you’ll remain with your current employer for the next few years.  If the loan is not repaid, the remaining balance may be treated as a taxable distribution and could be subject to ordinary income taxes and a 10% early withdrawal penalty.

What Happens If the Loan Is Not Repaid on Time?

Missed 401k loan payments generally won’t affect your credit score. However, failing to repay the loan according to its terms can still have serious tax consequences.

If the loan goes unpaid, the IRS may treat the remaining balance as a deemed distribution. This means:

✅ The unpaid balance is considered a taxable distribution.

✅ You’ll need to include that amount in your gross income for the year the default occurs.

✅ If you’re under age 59½, a 10 percent early distribution penalty may apply, unless you qualify for an exception.

Some plans allow a short “cure period” to make up missed payments before the loan is officially treated as a distribution. This period typically extends until the end of the next calendar quarter, to catch up on missed payments.

Option 2: Apply for a hardship withdrawal

While not all 401k plans offer loans or in-service withdrawals, many do allow hardship withdrawals in certain situations. These withdrawals are permitted by the IRS when there’s an immediate and heavy financial need, but the rules are strict.

Hardship withdrawals are typically subject to ordinary income taxes. If you’re under age 59½, a 10 percent early withdrawal penalty may also apply, unless you qualify for an exception. Keep in mind that you’re only allowed to withdraw the amount necessary to meet the financial need.

What qualifies as a hardship withdrawal?

✅ Medical Expenses — Unreimbursed costs for medical care incurred by you, your spouse, dependents, or designated primary beneficiary.

✅ Purchase of a Primary Residence — Expenses directly related to buying your main home (excluding mortgage payments).

✅ Tuition and Education Fees — Tuition, room and board, and other education-related expenses for the next 12 months of postsecondary education for you, your spouse, children, dependents, or primary beneficiary.

✅ Prevention of Eviction or Foreclosure — Payments needed to avoid eviction from your primary residence or to prevent foreclosure on the mortgage of that home.

✅ Funeral or Burial Costs — Expenses related to the funeral or burial of your parent, spouse, child, dependent, or primary beneficiary.

✅ Certain Home Repairs — Costs for repairing damage to your principal residence that would qualify under the IRS’s casualty loss rules.

📌 Also read: How Long Does a 401k Hardship Withdrawal Take?

Option 3: Roll Over Your 401k Into Another Retirement Plan

If your plan allows it, you could roll over part or all of your 401k balance into another eligible retirement account — such as a Traditional or Roth IRA.

✅ Rollovers are generally not taxed or penalized if completed within 60 days

If you miss this deadline, the distribution is treated as taxable income. If you’re under age 59½, it may also trigger a 10 percent early withdrawal penalty, unless you qualify for an exception.

Withdrawal rules vary by retirement plan. While many follow the standard age 59½ rule for penalty-free access, some exceptions may apply depending on your plan and situation.

✅ Can offer access to a wider range of investments

Even if you don’t plan to take a withdrawal, rolling over your assets can offer more investment flexibility. Most 401k plans provide a limited number of investment options — usually mutual funds selected by your employer. In contrast, a Traditional or Roth IRA may offer a wider range of investments, such as stocks, bonds, mutual funds, and ETFs.

If you’re eligible to open a Solo 401k, the plan may also allow investments in alternative assets like real estate or private equity. Rules vary by provider and must comply with IRS guidelines.

📝 Note: Not all plans allow in-service rollovers. This is an optional feature and may not be included in your plan.

📝 Reminder: As always, the new account must follow IRS rollover rules, and the transaction should be done carefully to avoid penalties.

📌 Also read: Best Solo 401k Brokerages in 2025

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