How to Make Withdrawals From a Roth 401k

A Roth 401k gives you the chance to build tax-free retirement income. But figuring out how and when to take money out can be confusing, especially if you’re used to the rules for a traditional 401k.

A Roth 401k is funded with after-tax dollars, which means qualified withdrawals are generally tax-free. But there are specific rules about timing, account age, and how earnings are treated. These rules are different from both traditional 401ks and Roth IRAs, and missing a key detail could cost you.

This guide explains how Roth 401k withdrawals work, when they are tax-free, and what happens if you withdraw too early. If you are getting close to retirement or thinking about rolling over your funds, knowing these rules could help you avoid unexpected taxes and penalties.

When You Can Withdraw From a Roth 401k

To withdraw from a Roth 401k without any penalties or taxes, you must wait until you’re at least 59½ years old. In addition, at least 5 years must have passed since you made your first Roth 401k contribution. This is known as the 5-year rule.

Are Roth 401k withdrawals taxed?

Qualified distributions from a Roth 401k are not taxed at all. Since your contributions were already taxed as regular income, your withdrawals in retirement are tax-free.

📌 Also read: Roth 401k vs Traditional 401k

The 5-Year Rule

The 5-year rule is an important part of how Roth 401k withdrawals work. It helps determine whether your distribution is considered qualified and therefore tax-free. Many people meet the age requirement but overlook this timing rule, which could lead to unexpected taxes on the earnings portion of a withdrawal.

How the 5-Year Rule Works

A Roth 401k must be open for at least 5 taxable years before earnings can come out tax-free. This rule applies in addition to the age requirement of age 59½.

If you open a Roth 401k later in life, the 5-year clock still applies. For example, someone who makes their first Roth 401k contribution at age 58 typically needs to wait until age 63 for their withdrawal to be considered qualified.

When the 5-Year Clock Begins

The clock does not start on the day your first contribution hits your account. It begins on January 1 of the taxable year you make that first Roth 401k contribution.

✏️ Hypothetical Example:

If you contribute to a Roth 401k for the first time in November 2025, your 5-year period starts on January 1, 2025, even though the deposit was made later. This means the account reaches its 5-year mark on January 1, 2030.

📝 Note: Each employer’s Roth 401k has its own 5-year period. Rolling funds into a new Roth 401k may restart or continue the timing depending on plan rules, so reviewing your plan’s details is important.

Rules for Qualified and Early Withdrawals

Once you reach age 59½ and your Roth 401k has been open for at least 5 taxable years, you are eligible to take qualified withdrawals. These are completely tax-free, including any earnings. That’s because you already paid income taxes on your contributions when you made them.

But if you withdraw money before meeting both requirements, the rules are different and potentially costly.

What Happens If You Withdraw Too Early?

Distributions taken before age 59½ or before the 5-year clock ends are considered nonqualified. These withdrawals are split between your original contributions and your investment earnings, based on the account’s overall ratio.

✅ Your contributions are not taxed again.
❌ Your earnings may be added to your taxable income and hit with a 10% early withdrawal penalty.

📝 Note: The IRS does provide exceptions to the 10% penalty. You may avoid the penalty (but not the income tax) if the withdrawal is due to:

How the Roth 401k Proration Rule Works

Unlike a Roth IRA, where you can generally withdraw contributions first with no tax or penalty, a Roth 401k follows a pro-rata withdrawal rule. This means each withdrawal is proportionally split between your contributions and any earnings, based on the current makeup of your account.

You cannot choose to withdraw only your contributions.

How to Estimate the Taxable Portion

To find out how much of a nonqualified withdrawal may be taxed, you’ll need to calculate the percentage of your account that comes from earnings.

✏️ Hypothetical Example:

Let’s say your Roth 401k has a total value of $100,000. You contributed $90,000 over time, and your investments have grown by $10,000. That means 10% of your account represents earnings.

If you take a $10,000 nonqualified withdrawal:

This method applies to all nonqualified Roth 401k withdrawals.

📝 Note: Because of this rule, even small early withdrawals may result in some taxes or penalties, especially if your account has seen strong investment growth.

Do Roth 401k Accounts Have RMDs?

As of 2024 and beyond, Roth 401k accounts are no longer subject to required minimum distributions (RMDs) during the account owner’s lifetime. This change came from the SECURE Act 2.0 and aligns Roth 401k treatment more closely with Roth IRAs.

✅ No RMDs are required while you are alive
❌ RMDs may still apply after your death for beneficiaries

Before this rule change, Roth 401k accounts did have lifetime RMDs starting at age 73, just like traditional 401k plans. That is no longer the case for 2025 and future years under current law.

📝 Note: If you inherited a Roth 401k, you may still be subject to post-death RMD rules depending on your beneficiary status and relationship to the original account holder.

Choosing Where to Rollover Your Roth 401k

If you leave your employer, you have several options for what to do with your Roth 401k balance. Where you move the funds could affect your tax treatment, investment flexibility, and account features.

You may be able to roll your Roth 401k into:

Why Some Choose a Roth IRA or Roth Solo 401k

Rolling into a Roth IRA is a common move because:

Rolling into a Roth Solo 401k may appeal to self-employed individuals because:

📌 Also read: Direct vs Indirect Rollovers

Borrowing From a Roth 401k

Some 401k plans, including Roth 401k options, may allow you to take out a loan from your account. This feature is designed for short-term financial needs, such as covering a major expense or buying a home. However, loans come with rules and potential risks.

How 401k Loans Work

If your plan permits it, you may borrow:

These limits are based on IRS rules, but employers can impose stricter limits through their plan document.

📝 Note: Not all plans allow loans. You will need to check your plan’s loan policy, usually found in the Summary Plan Description (SPD).

Repayment Terms

To avoid tax consequences, the loan must follow IRS guidelines under Section 72(p):

Missed payments may result in a deemed distribution, meaning the unpaid amount is treated as a taxable withdrawal and may also trigger a 10% early withdrawal penalty if you are under age 59½.

Things to Consider Before Borrowing

While borrowing from your Roth 401k may seem like a flexible option, there are trade-offs to consider:

✅ You do not pay taxes or penalties on the loan amount if repaid on time
✅ You are paying interest back into your own account

❌ Missed payments can turn into a taxable event
❌ You may lose potential investment growth while the money is out of the market
❌ Some plans may restrict new contributions while the loan is outstanding

📝 Note: Whether you can continue contributing while repaying your loan depends on your plan’s rules, not IRS policy. Always review your SPD before taking a loan.

Key Takeaways

Roth 401k withdrawals come with specific rules that depend on your age, how long the account has been open, and whether the distribution meets the qualified criteria. These rules affect how much tax you may owe and whether penalties apply.

Before taking money out, it may help to confirm how your plan handles timing, rollovers, and loans. Details can vary by employer, especially when it comes to in-service rollovers or loan restrictions.

If you are considering a rollover, compare your options. You could choose a Roth IRA or Roth Solo 401k, depending on your goals and situation. However, you should know how the five-year rule works across plans if you’re consolidating accounts.

If you’re not sure, speak with your plan administrator so you can have a clearer picture of what’s allowed under your plan.

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