Investing Simple Logo
Get 1 Free Stock Worth Up To $200 From Robinhood!
Sign up with Robinhood, deposit any amount and get 1 Free Stock. It takes less than 3 minutes to sign up and claim your Free Stock Bonus.
Earn 5.00% APY with M1 High-Yield Savings Account
M1 Plus members can earn 5.00% APY on their deposits with no minimum balance required.
Webull free stock promotion
Get Up To 5 Free Stocks From Webull
Open a new Webull brokerage account today and deposit any amount of money to receive 5 free stocks. Webull offers commission free stock, ETF, option and crypto trading.
Written by Roger Wohlner on March 9, 2022
Category: 
FTC Disclosure: Some of the links on this site are affiliate links. Read our full disclaimer here.

Can I Cash Out My 401(k) Without Quitting My Job? 

The question of whether you can get cash from your 401(k) without leaving your employer is yes, in most cases. 

The actual means of doing so can vary from plan to plan. When going through this process, it is important to note that an employer offering the plan (known as the plan sponsor) can opt-in or out of offering some of these methods. 

In most cases, it is written within a plan document as to what types of withdrawals are permitted within the plan.

You have two primary options:

  • Loans (plan permitted)
  • In-service withdrawals

If you prefer watching instead, check out our video on this topic below!

Learn More: Robinhood Retirement 3% Match

Robinhood is a popular "all-in-one" investing app.

While they are most well-known for their commission free stock trading, they've recently shaken up the Retirement Investing World too.

Introducing Robinhood Retirement; home of the biggest IRA match on the market.

Robinhood IRA Boost

Here's what you need to know:

  • Robinhood offers 2 types of retirement accounts - the Roth IRA and Traditional IRA
  • All Robinhood investors will get a 1% Match on what they Contribute or Transfer
  • Robinhood Gold members will get a 3% Match - the biggest on the market

And don't worry, this comes with a Portfolio Builder Tool. You don't have to construct your investment portfolio from scratch if you don't want to.

Lastly, you'll even get a free stock worth up to $200 when you open a new Robinhood account using our link.

Best Free Stock Promotions

BrokeragePromotionLink
Robinhood Logo1 Free Fractional Share Worth Up To $200Learn More
Webull LogoEarn Up To 75 Free Fractional SharesLearn More
Moomoo Logo5 Free Stocks When You Deposit $100+Learn More
Acorns Logo$20 Bonus When You Invest $5+Learn More

401(k) Loans 

If your plan allows them, one of your easiest options can be borrowing from your balance in the 401(k) plan. Typically the maximum you can borrow from your account is the lesser of $50,000 or 5% of your balance. You generally have five years to repay the loan. These payments go back into your account along with the interest charged on the loan. 

The CARES Act relief package, passed in the wake of the COVID-19 pandemic, increased the maximum amount you can borrow the lesser of $100,000 or 10% of your account balance. Additionally, the act includes more liberal repayment provisions for both these loans as well as for existing plan loans. 

Technically speaking, these higher loan limits are supposed to be for those who have been impacted by the pandemic. However, this is done on a self-certification basis. Also, note that these increased loan limits must be adopted by your employer. 

What If You Can’t Pay Back The 401(k) Loan?

The main downside of a loan occurs if you either can’t repay the loan or, in some cases, if you leave the employer prior to having paid off the loan. 

If you default on the loan this becomes a distribution that is subject to taxes and to a 10% penalty if you are younger than 59 ½

In some cases, leaving the company with an unpaid loan balance may trigger a distribution, but your plan may have repayment provisions that extend after you leave the company that allow for repayment without triggering taxes or a penalty. 

It’s always best to check with your company’s plan administrator so you fully understand the provisions of the loan. 

In-service 401(k) Withdrawals 

Many plans offer in-service withdrawals, but the terms and conditions of this option vary widely from plan to plan. This option is offered at the discretion of the employer offering the plan. 

There may be restrictions on why and at what age these withdrawals can be taken. 

Who Is Eligible For A Withdrawal?

Reasons might include hardship (see the special rules below), or this option may be made available for employees who are over a specified age such as 55 or 59 ½

While a large percentage of plans offer in-service withdrawals, the rules can be complex as to which portions of your account balance are eligible. For example, this might be limited to employer matching contributions and employer contributions to a profit-sharing account connected to the plan. 

Where allowed, in-service withdrawals might be a good option if the investment choices in your company’s plan are sub-par or the plan is a high-cost one.

An option, if allowed, might be to roll funds allowed under the in-service withdrawal option to an IRA account where you have a wider range of investment choices. 

Many brokerages can help you roll over your 401(k) into an IRA.

If you decide an in-service withdrawal is something you want to explore, be sure to consult with your plan administrator to be sure you understand all of the rules and restrictions involved. You should also consult with your financial advisor or tax professional if you use one.   

CARES Act 401(k) Early Withdrawals

The CARES Act contains a provision allowing those who are under age 59 ½ to take a distribution from their retirement plan while working, waiving the 10% penalty that would normally be associated with this type of distribution.

The distributions are still subject to income taxes, but these taxes can be spread over a three-year period. You can “re-contribute” some or all of the money taken via this route over a three-year period and avoid some or all of these taxes. 

These distributions require that you document that COVID-19 has impacted you or a family member. This means that you or a family member has contracted the virus or that you or a family member has been financially impacted by COVID-19 in ways that might include a job loss or reduced income. For a 401(k) plan, the ability to take these distributions is not automatic, your employer needs to adopt this as a provision of the plan. 

Hardship Withdrawals 

The IRS defines a hardship withdrawal as follows, 

A hardship distribution is a withdrawal from a participant’s elective deferral account made because of an immediate and heavy financial need and limited to the amount necessary to satisfy that financial need. The money is taxed to the participant and is not paid back to the borrower’s account.” 

Your ability to take a hardship withdrawal from your 401(k) is at the discretion of your employer. It may or may not be allowed for plan participants. 

If the plan does allow for hardship distributions, the plan must specify the criteria that defines a hardship. This might include medical expenses, the cost of a funeral for a family member or if the funds are needed to prevent eviction from or foreclosure on your residence. 

Qualifications For Hardship Withdrawals

The IRS defines some criteria for a hardship withdrawal. These include: 

  • The withdrawal is due to an immediate and heavy financial need.
  • The withdrawal is necessary to satisfy this immediate and heavy financial need. This means that you don’t have another source of funds available to you that will allow you to meet this need.
  • The amount of the hardship withdrawal cannot exceed the amount that you need to satisfy this financial need. 

Acceptable Reasons For Hardship Withdrawals

The IRS considers the following as acceptable reasons for a hardship withdrawal: 

  • Medical expenses for you, a spouse or a family member.
  • Costs you might incur related to the purchase of your principal residence (not a for a second home like a vacation property). This could include a down payment, but not the ongoing mortgage payments.
  • To prevent your eviction from or the foreclosure of your principal residence.
  • Funeral expenses for you, your spouse, other dependents, or family members.
  • To cover post-secondary educational expenses for the next 12-months for you, your spouse and other family members. This includes things like tuition, fees, room and board, among others.
  • Expenses related to the repair of your principal residence that fall under the IRS guidelines of what constitutes a casualty loss. 

Additionally, IRS rules prohibit you from contributing to the plan for a period of at least six months. 

Taking Withdrawals Out of Your 401(k)

There are options to get cash out of your 401(k) plan while still working, but they often involve paying taxes and in some cases a penalty. This can be an expensive source of cash; be sure you look at all of the rules and ramifications before going this route.

Don't forget to grab your free stock worth up to $200 from Robinhood today!

Article written by Roger Wohlner
Roger is a financial writer who brings his extensive experience as a financial advisor to his writing. His work has been featured in TheStreet, Investopedia, Morningstar Magazine, Go Banking Rates, US News & World Report, Yahoo! Finance, The Motley Fool, and a number of other sites. His blog The Chicago Financial Planner provides information on a wide range of financial topics.

Read more

Power Your Investing

Choosing the right product and service is essential for your investing. Here are some of the tools and services to help your portfolio grow.
Robinhood
Robinhood provides an easy-to-use commission free trading platform for beginner investors. Robinhood has $0 account minimums. Get a free stock when you open an account below. Limitations Apply.
Try Robinhood
M1 Finance
M1 Finance offers a free investing platform where users can build portfolios of stocks and ETFs. Users can also choose from a variety of pre-built portfolios offered for free.
Try M1 Finance
Fundrise
Passively invest in private real estate deals with as little as $10. Fundrise allows you to own residential and commercial real estate across the U.S. starting at a 1% annual fee.
Try Fundrise
Copyright © 2018 – 2024 Investing Simple LLC. All Rights Reserved.
Investing Simple is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that investment markets have inherent risks, and past performance does not assure future results. Investing Simple has advertising relationships with some of the offers listed on this website. The information on Investing Simple could be different from what you find when visiting a third-party website. All products are presented without warranty. For more information, please read our full disclaimer.
Website managed by Stallion Cognitive™
magnifiermenuchevron-downcross-circlechevron-down-circle

Get 1 Free Stock Worth Up To $200 From Robinhood!

Don't Miss This Opportunity!

Investing Simple readers can claim a free stock from Robinhood worth up to $200 when they open a brokerage account and deposit any amount.

For US Residents only. Investing Simple is affiliated with Robinhood, and we may earn a commission when you sign up for Robinhood.

18749
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram