Can I take money out before retirement?
Generally, withdrawals before age 59½ may face a 10% additional tax on top of income tax, unless an exception applies. IRS rules list the exceptions.
Taxes and required withdrawals
What Are Tax-Deferred Retirement Accounts?
A tax-deferred retirement account lets money grow without yearly income tax until you take it out. Traditional IRAs, 401(k)s, 403(b)s and the traditional TSP are common examples. Contributions were often made before tax, so withdrawals in retirement are generally taxed as ordinary income. The IRS also eventually requires minimum withdrawals, which makes these accounts an important part of retirement tax planning.
Written and reviewed by Dan Hopwood, Retirement Income Specialist · Retirement Income Knowledge Center
Tax later, not tax never
Deferring tax can help money grow while you work. In retirement, the bill comes due: each dollar withdrawn is generally added to your taxable income for that year. A $600,000 account balance is not $600,000 of spending money, because some of it will go to taxes.
Illustrative withdrawal
- Withdrawal from a traditional IRA
- $30,000
- Assumed combined tax rate
- 20%
- Estimated tax
- $6,000
- Left to spend
- $24,000
Illustration only. Your actual tax depends on your total income, deductions and current tax law.
Common tax-deferred accounts
- Traditional IRA
- 401(k) and 403(b) plans (traditional, not Roth)
- Traditional Thrift Savings Plan (TSP) for federal workers and military
- Many qualified annuities held inside an IRA or plan
Required minimum distributions
Because tax has been delayed, the IRS eventually requires withdrawals each year, called required minimum distributions. They generally begin at age 73 for many retirees today, and at 75 for people born in 1960 or later. Roth IRAs do not require withdrawals during the original owner's lifetime.
Why the mix of accounts matters
Retirees who have tax-deferred, Roth and regular taxable savings have more choices about where each year's income comes from. That can affect how much tax they pay and how their Social Security and Medicare premiums are affected.
Estimate your future required withdrawals
Enter your tax-deferred balance and age. The calculator projects future RMDs and the tax they may create, so you can see the number early.
Open the RMD Tax Exposure CalculatorFree • Results on-screen right away • No email required
Common questions
Are all 401(k)s tax-deferred?
Traditional 401(k) contributions are. Many plans also offer a Roth 401(k) option, where qualified withdrawals can be tax-free.
Is this tax advice?
No. It is general education. Please review your own situation with a qualified tax professional.
How do I turn my 401(k) into monthly retirement income?
Common ways include setting up regular withdrawals, rolling money to an IRA and drawing from it, or using part of it to buy an annuity that pays income. Withdrawals from tax-deferred accounts are generally taxable income. Plan rules and your tax situation affect which option fits.
Can I get monthly income from my TSP?
Yes. The Thrift Savings Plan offers installment payments, single withdrawals and the option to buy a life annuity through the plan. Check the TSP's current withdrawal rules for details.
Should I roll my 401(k) into an IRA when I retire?
It depends on the plan's fees, options, withdrawal rules and protections compared with an IRA. Some people leave money in the plan, and some roll part or all of it over. A direct rollover avoids mandatory tax withholding; this is general education, not advice about securities or taxes.
What is the difference between a TSP installment and a TSP annuity?
TSP installments pay a set amount from your account that can be changed, and the balance stays yours and can run out. A TSP life annuity pays income for life but generally cannot be undone. This is educational only; review the TSP's current rules.
How are traditional IRA withdrawals taxed?
Traditional IRA withdrawals are generally taxed as ordinary income in the year you take them. Withdrawals before 59½ may also face a 10% additional tax unless an exception applies. This is general education, not tax advice.
Can I keep some savings liquid while turning the rest into income?
Yes. Many people keep an emergency reserve in accessible accounts and use only part of their savings for steady monthly income. The split depends on your expenses, other income and comfort level.
Authoritative sources
This page is educational and general in nature. RetirementLeverage™ and Retirement Planning Store, Inc. do not provide individualized investment, securities, tax, or legal advice; please consult a qualified tax professional or attorney about your own situation. Insurance products and services may not be available in every state, and any guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company.