A woman researching how long it takes to withdraw from a 401(k).
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Generally, you should only make 401(k) withdrawals as you enter retirement, but there are certain situations in which you may do so earlier in life. Generally, withdrawing money from a 401(k) can take two to three business days for a direct transfer and roughly a week for a check, but the context in which you make a withdrawal can impact the timeline. It also depends on the policies of your plan administrator and the method of withdrawal.
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In most cases, standard 401(k) withdrawals take five to seven business days, though some providers may have shorter or longer time frames. This period includes the time needed for the plan administrator to review and approve the request and initiate the withdrawal or transfer. However, the need for additional documentation or delays in communication could lengthen this timeline.
The type of withdrawal can also impact how long a 401(k) withdrawal takes. For example, hardship withdrawals, which permit early withdrawals to pay for things like medical or educational expenses, might take longer due to the additional paperwork and proof required.
401(k) rollovers to an IRA or another retirement account generally take longer than direct withdrawals. This process involves transferring funds from one financial institution to another, which can take up to 10 days.
Several other factors can influence how long it takes to withdraw money from a 401(k). These include the efficiency of the plan administrator and the method of withdrawal. Withdrawals processed via direct deposit are typically faster than those issued by check.
A woman creating a retirement plan that includes a withdrawal strategy from her 401(k).
Withdrawing funds from your 401(k) can lead to several consequences, such as taxes and potential penalties. When you take money out of a traditional 401(k), it is taxed as income since the contributions were made with pre-tax dollars. This increases your taxable income for the year. Additionally, you know that most 401(k) distributions come with an automatic 20% withholding for federal taxes.
If you withdraw funds from your 401(k) before reaching the age of 59½, you will likely face a 10% early withdrawal penalty on top of the regular income tax. That’s because 401(k) accounts aren’t designed for pre-retirement use. The penalty is there to discourage early withdrawals, ensuring you have plenty of money to fund your retirement years. There are, however, exceptions to the penalty, including the rule of 55. This rule allows you to withdraw from your 401(k) with no penalty during or after the year you turn 55 if you’ve lost your job.
Hardship withdrawals also allow you to access your 401(k) funds before retirement without facing the 10% early withdrawal penalty. These withdrawals are permitted under certain conditions, such as paying for significant medical expenses, the purchase of a primary residence, or tuition. While the penalty might be waived, you will still owe income tax on the amount withdrawn, which can affect your long-term retirement savings.
You may also be able to access your 401(k) funds through a 401(k) loan. This type of loan allows you to borrow against your retirement savings and repay the loan with interest over a specified period, usually five years. The advantage of a 401(k) loan is that it is not taxed if repaid on time. But if you fail to repay the loan, it can be treated as a withdrawal and is subject to taxes and penalties.
If you leave a job with an employer-sponsored retirement plan, you may need to move your money from a 401(k) into an IRA. This transfer is known as a rollover and allows you to continue deferring taxes until you make withdrawals from the new plan.
To initiate a rollover, contact your 401(k) plan administrator to request a withdrawal form. You may also be able to do so online. Specify that you want to complete a direct rollover to an IRA. This ensures the funds are transferred directly from your 401(k) to your new or existing IRA, bypassing potential tax withholdings and early withdrawal penalties.
After submitting your request, the 401(k) plan administrator typically processes the transaction within a few business days. However, the complete process, from the initial request to the funds being deposited into your IRA, can take anywhere from one to three weeks.
If you get a distribution from a 401(k) plan, you can roll it over into an IRA via an indirect rollover, but you must complete this within 60 days to dodge taxes and penalties. You need to deposit the full amount of the original distribution into the IRA, not just the amount you received after taxes were deducted.
Once the rollover is initiated, keep track of the transaction through both your 401(k) and IRA providers. Confirm that the funds have been successfully transferred and properly credited to your IRA.
A woman reviews her retirement plan.
The time it takes to withdraw money from your 401(k) depends on your plan administrator and the withdrawal method. It usually takes five to seven business days to receive the funds after submitting your request with all the necessary documentation. To speed up the process, fill out all forms correctly and quickly. Confirm with your plan administrator that they have received your request and inquire if there are any further steps. If you need the funds soon, make sure to submit your request well in advance.
Not only can withdrawing from your 401(k) plan have major tax implications, but those investments play a critical role in your financial security during retirement. Don’t make early withdrawals without careful consideration. Better yet, reach out to a financial advisor to create a withdrawal plan that minimizes taxes and maximizes growth. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Generally, you make contributions to your 401(k) with pre-tax dollars, and you pay taxes on withdrawals. Learn more about 401(k) tax rules and the ramifications of early withdrawals.
