Can I Withdraw From My 401(k) if I'm Retired but Still Working?

After years of saving in that 401(k) plan, it's finally time to enjoy the fruits of your labor. However, you may want to just enter retirement part time, and still keep on working, either for the same company or a different one. Your ability to take 401(k) withdrawals while still working vary depending on your age, the company's policies concerning its 401(k) plans, and if you are still working for the company that provided the plan.

Minimum Age

The minimum retirement age for most 401(k) withdrawals to avoid early withdrawal tax penalties is 59 1/2. When you reach 59 1/2, you can generally withdraw funds from your 401(k) to use however you like if you no longer work for the company that provided the plan.

Plan Rules

Your plan rules will be the final authority on if you can withdraw from your plan at age 59 1/2 while you are still working for the company providing the plan. Some companies will not let you make any withdrawals at all if this is the case. Other plans may allow you to withdraw only the money that you have contributed, requiring you to leave earnings in the plan until you leave employment. Other plans may allow you to withdraw if you have worked for the company for a specific number of years.

Working for Another Employer

If you work for another employer, and have retired or no longer work for the employer who issued the plan, you can withdraw from the plan without penalty as long as you are older than 59 1/2. Some plans may also allow you to withdraw in this case if you are age 55 or older. You can use the money you withdraw at this time for any purpose you like.

Other Withdrawals

While an IRA account allows you to withdraw money easily, without even providing a reason in most cases, many 401(k) plans restrict your right to withdraw the money considerably when you are still working for the company if you are younger than 59 1/2. Many companies list specific reasons that you can withdraw, such as to prevent your primary residence for going into foreclosure, or to pay for funeral expenses. Even if you qualify for a hardship withdrawal when younger than retirement age, you will still have to pay a 10 percent tax penalty, as well as taxes on the withdrawal at your normal income tax rate.

Required Minimum Withdrawals

When you reach age 70 1/2, you may have to take withdrawals from your 401(k) account. If you have retired from the job that provided the plan, you must begin to make withdrawals from the account; the amounts are based on your life expectancy according to IRS tables. If you are still working for the company, you do not have to take mandatory distributions, unless you own at least 5 percent of the company. In that case, you must begin taking withdrawals at age 70 1/2, and pay the applicable taxes.