How to Withdraw From Your 401(k) After Age 60

Reaching age 60 is a major financial milestone, particularly when it comes to your 401(k) retirement savings. While you can access your 401(k) without penalties after age 59 ½, there are important rules, strategies and tax implications to keep in mind. As you near or enter retirement, you’ll likely begin to consider how and when to start taking withdrawals. Managing your 401(k) distributions effectively is key to ensuring your savings last and supporting your retirement lifestyle.

A financial advisor can help you develop a withdrawal strategy that supports your financial security and long-term goals.

Withdrawing From a 401(k) After Age 60

Once you turn 59 ½ , you can begin making withdrawals from your 401(k) without facing the 10% early withdrawal penalty that applies to younger account holders. However, you’ll still owe ordinary income taxes on any distributions from a traditional 401(k). It’s different if you have Roth 401(k) contributions, which can be withdrawn tax-free if you’ve met the five-year holding requirement.

If you reach 60 with a 401(k) balance, here are some important rules to keep in mind:

• No early withdrawal penalty: After age 59 ½, you can withdraw freely without paying the 10% penalty, although income taxes still apply.
• Required minimum distributions (RMDs): You are required to begin taking required miminim distributions (RMDs) from your 401(k) by April 1 following the year you turn 73. The rules for RMDs are somewhat complex, but it’s important to follow them. Failure to properly take RMDs can result in steep penalties.
• Separation from service rule: If you leave your job at age 55 or older, you can start withdrawing from your current employer’s 401(k) without paying the early withdrawal penalty. This is called the Rule of 55, and it can provide additional flexibility if you retire early.

6 Withdrawal Strategies to Consider After 60

Choosing the right withdrawal strategy is key when it comes to maximizing your retirement income and minimizing taxes. Depending on your financial situation, one or more of the following approaches may work for you.

1. Regular Distributions

Setting up regular distributions (monthly, quarterly or annually) is one of the most popular ways to manage 401(k) withdrawals. Many retirees schedule payments that mimic a paycheck, providing a steady and predictable income stream.

You can typically arrange for systematic withdrawals directly through your 401(k) plan provider. You’ll choose the amount and frequency of payments. This strategy helps with budgeting and can reduce the temptation to overspend that could result from taking larger amounts less frequently.

When you take regular distributions from a 401(k), the amount withdrawn is taxed as ordinary income in the year you receive it. These distributions can increase your taxable income and may impact your eligibility for certain tax credits. They can also increase your Medicare premiums if your income crosses specific thresholds. Given these concerns, it’s important to plan your withdrawals carefully to avoid surprises.

Pros:

• Creates a predictable income stream.
• Helps with budgeting and planning.

Cons:

• May not automatically adjust for inflation unless you periodically increase your withdrawal amount.
• Can reduce flexibility if unexpected expenses arise.

2. Rollover to Another Retirement Account

Many retirees choose to roll over their 401(k) balance into an IRA once they leave their employer. IRAs may be preferable, as they often offer a wider range of investment options and more flexible withdrawal strategies.

You complete a direct rollover by moving your 401(k) funds into a traditional IRA. Once that’s completed, you can customize withdrawals based on your retirement needs.

A direct rollover from a 401(k) to a traditional IRA is not a taxable event. However, once you begin withdrawing from the IRA, those distributions are taxed as ordinary income. If you accidentally conduct an indirect rollover (where the money is paid to you first), then 20% is typically withheld for taxes, unless you redeposit the full amount within 60 days. For this reason, a direct rollover is generally preferred.

Pros:

• Greater control over investments and withdrawals.
• Potential for lower fees compared to some employer 401(k) plans.

Cons:

• Must follow RMD rules starting at age 73.
• Potential for higher investment risk if not managed carefully.

3. Lump Sum Withdrawal

Some retirees opt to take a lump sum distribution from their 401(k) account, withdrawing some or all of the entire balance at once. While this may be appealing for paying off large debts or making a major purchase, it can have major tax consequences.

The withdrawn amount will be taxed as ordinary income in the year it is withdrawn, which could push you into a higher tax bracket. Depending on the size of the distribution, you might also be subject to higher Medicare premiums and the 3.8% Net Investment Income Tax (NIIT) if your income crosses certain thresholds.

Pros:

• Immediate access to up to your full retirement savings.
• Flexibility to use the funds however you wish.

Cons:

• Large tax bill, potentially pushing you into a higher tax bracket.
• Risk of spending down assets too quickly.

4. Limit Withdrawals to RMDs

If you’re well-covered by other sources of retirement income, you could opt to leave as much of your funds invested in your 401(k) as possible, only taking RMDs as mandated. This will also preserve the account longer than taking regular withdrawals starting at age 59 ½. 

RMDs are still taxed as ordinary income, though, meaning they still could push up your tax bill, depending on your other sources of income. There are, however, strategies to reduce your RMDs that you could employ, such as donating to charity.

Pros:

• Allows funds to stay invested. 
• Preserves the account balance for longer.

Cons:

• Amount of withdrawals dictated by IRS rules. 
• Income tax still applies.

Use our RMD calculator below to estimate how much you’ll need to withdraw this year.

5. Hardship Withdrawal

In limited circumstances, you can take a hardship withdrawal from your 401(k). This may be a solution if you have immediate and heavy financial needs, such as medical expenses, disability or an impending foreclosure. While hardship withdrawals are usually associated with active employees, retirees facing unforeseen emergencies might still need this option.

You can submit a hardship withdrawal request with documentation of your financial need. Taxes will apply to the amount withdrawn, but if you’re over 59 ½, you avoid the additional 10% penalty.

Keep in mind that hardship withdrawals can bump you into a higher tax bracket for the year, and they are not eligible to be repaid or rolled over, reducing the size of your retirement savings permanently.

Pros:

• Access funds in the event of an emergency.
• No early withdrawal penalty after age 59 ½.

Cons:

• Depletes retirement savings intended for long-term support.
• Reduces future income potential.

6. 401(k) Loan

If you are still employed at 60 but planning your retirement transition, a 401(k) loan might be available. Typically, you can borrow up to $50,000 or 50% of your vested account balance, whichever is less. Repayments are made with after-tax dollars through payroll deductions.

You can request a loan through your plan administrator. Repayment terms typically last up to five years, although loans for primary home purchases may have longer terms.

A 401(k) loan itself is not a taxable event as long as you repay the loan according to the agreed schedule. However, if you fail to repay it or if you leave your job and cannot repay the outstanding balance, it is considered a distribution and taxed as ordinary income. Plus, you’ll lose the benefit of tax-deferred growth on the borrowed amount while it’s out of your account.

Pros:

• No taxes or penalties if repaid on time.
• Interest payments go back into your account.

Cons:

• If you leave your job, the outstanding loan balance must typically be repaid quickly or it will be treated as a distribution (and taxed accordingly).
• Reduces the amount of money growing tax-deferred.

Bottom Line

Withdrawing from your 401(k) after age 60 opens up a wide range of possibilities for managing your retirement income. Whether you opt for regular distributions, a rollover to an IRA or another approach, it’s a good idea to carefully consider the tax implications, your long-term income needs and your risk tolerance. Each strategy has its benefits and trade-offs, so personalizing your plan is crucial. A financial advisor can help you develop a withdrawal strategy that helps ensure you enjoy a financially secure retirement.

Tips for Retirement Planning

• How confident are you that your portfolio is positioned for today’s economy? A financial advisor can help you keep your portfolio on pace to reach your long-term goals. 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.
• A retirement calculator can help you better understand how much you might need to save for retirement.

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