Roth 401(k) Withdrawal Rules: When Can You Take Money Out Without Penalty?

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You can take money out of a Roth 401(k) completely tax-free and penalty-free once the withdrawal is qualified: you are at least 59½ (or disabled, or the money goes to your beneficiary after your death) and at least five taxable years have passed since your first Roth contribution to that plan. Before both conditions are met, any withdrawal is split between your contributions, which come out tax-free, and your earnings, which are taxed as income and usually hit with a 10% penalty. Unlike a Roth IRA, a Roth 401(k) does not let you pull out contributions first, and your plan’s own rules may limit when you can withdraw at all while you still work for the employer.

The two conditions for a qualified withdrawal

Roth 401(k) contributions go in with after-tax dollars, so qualified distributions, including all the investment growth, are not taxed. You need both tests. A 62-year-old who started making Roth contributions two years ago does not yet have a qualified distribution, and neither does a 45-year-old with a 15-year-old account. Disability, or death with the money going to your beneficiaries, replaces the age test, but the five-year period must still be satisfied.

Even a fully tax-free distribution is still reported. The plan issues Form 1099-R, and you report the distribution on your tax return even though no tax is owed.

How the five-year clock works

The five-year period for a Roth 401(k) starts on January 1 of the year you made your first designated Roth contribution to that plan, not on the date of the deposit. It ends after five full taxable years.

For example, if your first Roth contribution came out of a paycheck in November 2022, the clock started January 1, 2022, and the five-year period is complete after December 31, 2026. A withdrawal in 2027 or later is qualified, as long as you are also 59½ or meet the disability or death condition.

Two details often trip people up:

• Each employer plan has its own clock. If you move a Roth 401(k) from a former employer’s plan into a new plan by direct rollover, the earlier start year can carry over. Starting fresh contributions in a new plan without a rollover starts a new five-year period there.
• A Roth IRA has a separate clock. When you roll a Roth 401(k) into a Roth IRA, the IRA’s five-year period applies, and it runs from your first contribution to any Roth IRA. Years spent in the 401(k) do not count toward it. Someone who opens a Roth IRA for the first time at retirement to receive a rollover may have to wait for the IRA clock before earnings come out tax-free.

Early withdrawals: contributions and earnings come out together

A withdrawal that is not qualified is not entirely taxable. Your contributions were already taxed, so that portion comes out free of both income tax and the 10% penalty. The earnings portion is included in your gross income and, unless an exception applies, also carries the 10% additional tax.

The catch is that you cannot choose to take only contributions. Every nonqualified distribution is prorated using the ratio of earnings to the total account balance:

Taxable earnings in a withdrawal = withdrawal amount × (account earnings ÷ account balance)

Example

Hypothetical figures, assuming the withdrawal is nonqualified and no penalty exception applies:

• Account balance: $10,000 ($9,000 contributions, $1,000 earnings)
• Earnings ratio: $1,000 ÷ $10,000 = 10%
• Withdrawal: $4,000

Of the $4,000, $400 is earnings and $3,600 is contributions. The $400 is added to your taxable income for the year and also owes a 10% additional tax, which is $40. The $3,600 is not taxed or penalized.

A traditional 401(k) also charges 10% on early withdrawals, but on the whole taxable amount, which is usually the entire distribution because the contributions were never taxed. In a Roth 401(k), the penalty reaches only the earnings share, so the cost of an early withdrawal depends on how much of your balance is growth.

If the plan pays a nonqualified distribution to you instead of rolling it over, it generally withholds 20% of the taxable portion for federal income tax. That withholding is a prepayment toward your tax bill, not an additional charge.

Roth 401(k) vs. Roth IRA: when you can start pulling money

The age and five-year tests look similar for both accounts, but early access works differently:

• Roth IRA: withdrawals are treated as coming from contributions first, then conversions, then earnings, so you can take out up to your total contributions at any age without tax or penalty. Only earnings face the qualified-distribution test. The Roth IRA withdrawal rules cover the ordering rules and the separate five-year rules for conversions.
• Roth 401(k): no contributions-first treatment. Every early withdrawal carries a share of earnings under the proration formula above, and the plan decides whether you can take a withdrawal at all.

When your plan lets you take money out

Tax rules decide how a withdrawal is taxed. Your plan document decides whether you can get one. Federal law generally restricts 401(k) distributions of your own deferrals to these events: leaving the employer, reaching 59½, disability, death, plan termination, or a hardship if the plan offers hardship withdrawals.

That means:

• After you leave the job, you can usually take a distribution or roll the money over at any age.
• While still employed, a plan may allow in-service withdrawals at 59½, but it is not required to. If your plan does not offer them, the employer can decline a withdrawal request even if you are 62. A loan, if the plan allows one, may be the only access until you separate from service.
• Hardship withdrawals are a plan feature for an immediate and heavy financial need. They do not remove the tax and penalty on the earnings portion.

Exceptions to the 10% penalty

Several situations remove the 10% additional tax on the earnings portion of an early withdrawal. They do not make the earnings tax-free; income tax still applies unless the distribution is qualified. Exceptions that apply to 401(k) plans include:

• Leaving your employer in or after the year you turn 55 (age 50 for certain public safety employees), for distributions from that employer’s plan
• Total and permanent disability
• Distributions to beneficiaries after the owner’s death
• A series of substantially equal periodic payments after separation from service
• Unreimbursed medical expenses above 7.5% of adjusted gross income
• Payments to an alternate payee under a qualified domestic relations order
• An IRS levy on the plan
• A qualified birth or adoption, up to $5,000 per child
• Terminal illness, qualified disaster recovery, and, under the SECURE 2.0 Act, emergency personal expense distributions (up to $1,000 a year) and distributions for victims of domestic abuse, if the plan permits them

The age-55 separation rule applies to employer plans, not IRAs. Rolling the money into a Roth IRA before you withdraw can therefore cost you that exception.

Rollovers

Moving money to another retirement account is not a withdrawal for tax purposes when done correctly.

A direct rollover sends the funds from your plan straight to another employer’s designated Roth account or to a Roth IRA. Nothing is taxed or withheld.

An indirect rollover pays the money to you first, and you have 60 days to deposit it in a Roth 401(k) or Roth IRA. Anything not redeposited in time is treated as a distribution, with tax and possibly the penalty on its earnings share. The contributions portion can go only into a Roth IRA, while the earnings portion can go into either a Roth IRA or another Roth 401(k). Because of the 20% withholding on the taxable portion, you would need to replace that amount from other funds to roll over the full sum.

Loans

Many plans, Roth or traditional, let you borrow instead of withdraw. The legal limit is generally 50% of your vested balance or $10,000, whichever is greater, up to a maximum of $50,000. You usually repay within five years in substantially equal payments made at least quarterly, and the interest goes back into your own account. A loan is not taxed as long as you repay it on schedule. If you default, the outstanding balance is treated as a distribution, and its earnings share can be taxed and penalized.

Required minimum distributions

You no longer have to start withdrawing from a Roth 401(k) at a set age. The SECURE 2.0 Act of 2022 eliminated lifetime required minimum distributions for designated Roth accounts beginning in 2024, matching Roth IRAs, which never had them. Before 2024, RMDs started at 73 (or 70½ for anyone who reached that age by January 1, 2020), and a required distribution for 2023 or earlier still had to be taken. Beneficiaries who inherit the account remain subject to their own distribution rules.

The Bottom Line

Roth 401(k) savers who may need money before 59½, or soon after starting contributions, should check both the five-year clock and their plan's withdrawal rules first. A plan loan, a direct rollover, or a penalty exception can cost less than a nonqualified withdrawal. Anyone retiring between 55 and 59½ should think twice before rolling into a new Roth IRA, which can lose the age-55 exception and start a fresh clock.