In-Service Withdrawal

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 11, 2023

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What Are In-Service Withdrawals?

In-service withdrawals refer to the option to withdraw funds from a qualified retirement plan, such as a 401(k), while still employed by the plan sponsor.

In-service withdrawals allow individuals to withdraw funds from their qualified retirement plan, such as a 401(k), while they are still employed by the company that sponsors the plan.

This is in contrast to traditional withdrawals, which can only be taken once the individual has left their job or reached a certain age.

Eligibility for in-service withdrawals can vary by plan, but typically those who are over age 59 ½ or have a financial hardship may be eligible to withdraw funds. However, it's important to note that taking in-service withdrawals may have tax implications.

The amount withdrawn is generally subject to income tax and may also be subject to a 10% early withdrawal penalty if taken before age 59 ½.

Types of Retirement Plans Allowing In-Service Withdrawals

401(k) Plans

A 401(k) is a qualified employer-sponsored retirement plan that allows employees to contribute a portion of their wages to individual accounts on a tax-deferred basis. Some 401(k) plans permit in-service withdrawals under specific circumstances.

403(b) Plans

A 403(b) plan is a tax-deferred retirement plan for employees of public schools, non-profit organizations, and certain ministers. Like 401(k) plans, in-service withdrawals may be allowed under certain conditions.

457(b) Plans

A 457(b) plan is a non-qualified, tax-deferred retirement plan offered to state and local government employees and some non-governmental organizations. In-service withdrawals may be allowed under specific circumstances, similar to 401(k) and 403(b) plans.

Thrift Savings Plan (TSP)

The Thrift Savings Plan is a defined-contribution retirement savings plan for federal employees and members of the uniformed services. In-service withdrawals may be available under certain conditions.

Individual Retirement Accounts (IRAs)

IRAs are tax-advantaged retirement accounts that individuals can establish independently of their employers. In-service withdrawals from IRAs are generally unrestricted, but tax consequences and penalties may apply depending on the specific IRA type and the individual's age.

Reasons for In-Service Withdrawals

Financial Hardship

One common reason for in-service withdrawals is financial hardship. When faced with an unexpected expense or an urgent need for cash, an individual may choose to withdraw from their retirement account.

Unexpected Medical Expenses

In the event of a major illness or accident, an individual may need to access their retirement funds to cover medical expenses not covered by insurance.


If an individual becomes disabled and can no longer work, they may need to withdraw from their retirement account to cover living expenses and medical costs.

Divorce or Separation

In the event of a divorce or legal separation, an individual may need to access retirement funds to cover legal fees or support themselves during the transition.

Educational Expenses

Sometimes, an individual may withdraw from their retirement account to pay for higher education expenses for themselves or a family member.

Home Purchase or Repairs

In certain circumstances, an individual may withdraw from their retirement account to make a down payment on a home or to cover significant home repairs.

Reasons for In-Service Withdrawals

Eligibility Requirements for In-Service Withdrawals

Age-Based Eligibility

Some retirement plans allow in-service withdrawals once the participant reaches a specific age, typically 59½.

Length of Employment

Certain plans may require a minimum length of employment before allowing in-service withdrawals.

Plan-Specific Rules and Restrictions

Each retirement plan may have its own set of rules and restrictions regarding in-service withdrawals. These may include limits on the withdrawal amount, frequency, or reasons for withdrawal.

Withdrawal Limits

Some plans may limit the total amount an individual can withdraw or the frequency of withdrawals.

Consequences of In-Service Withdrawals


Income Tax

Withdrawals from tax-deferred retirement accounts are generally subject to income tax.

Early Withdrawal Penalty

An additional 10% early withdrawal penalty may apply if the individual is under the age of 59½.

Tax Withholding

Mandatory tax withholding may apply to in-service withdrawals unless the individual elects otherwise or the withdrawal is rolled over into another eligible retirement account.

Impact on Retirement Savings

In-service withdrawals can significantly reduce an individual's retirement savings, potentially affecting their ability to retire comfortably.

Loan Considerations

Some retirement plans allow loans instead of withdrawals. While loans can provide temporary access to funds, they must be repaid, typically with interest, to avoid additional taxes and penalties.

In-Service Withdrawal Alternatives

Loans From Retirement Accounts

Some retirement plans offer loans as an alternative to withdrawals, allowing participants to borrow against their account balance and repay the loan with interest over time.

Emergency Funds

Establishing and maintaining an emergency fund can help individuals avoid the need for in-service withdrawals by providing a separate source of funds for unexpected expenses.

Insurance Products

Disability and long-term care insurance can help cover costs associated with illness, injury, or long-term care, reducing the need for in-service withdrawals.

Debt Consolidation

Debt consolidation can help manage high-interest debt, potentially lowering monthly payments and reducing the need for in-service withdrawals.

Other Sources of Income

Part-time jobs or side gigs can provide additional income, decreasing the need for in-service withdrawals to cover expenses.

Process of Initiating an In-Service Withdrawal

Contacting Plan Administrator or Custodian

To initiate an in-service withdrawal, the individual should contact their plan administrator or account custodian for guidance and specific requirements.

Reviewing Plan Documents

Before initiating an in-service withdrawal, individuals should review their plan documents to understand the rules and restrictions related to withdrawals.

Determining Eligibility

Individuals must determine their eligibility for an in-service withdrawal based on their plan's rules, age, length of employment, and other factors.

Completing Required Forms

Individuals must complete the necessary forms, including providing documentation of the reason for withdrawal and other required information.

Selecting a Withdrawal Method

The individual must choose a withdrawal method, such as a lump sum or periodic payments, and consider the tax implications of each method.

Tax Withholding Decisions

Individuals should carefully consider their tax withholding options to avoid under-withholding, which can result in tax liability and possible penalties.

Strategies to Minimize Consequences of In-Service Withdrawals

Rolling Over Funds to Another Eligible Retirement Account

By rolling over the withdrawn amount to another eligible retirement account, individuals can avoid immediate tax consequences and maintain their retirement savings.

Spreading Withdrawals Over Multiple Years

By spreading withdrawals over multiple years, individuals can minimize the tax impact of withdrawals and better manage their overall financial situation.

Coordinating Withdrawals With Other Income Sources

Individuals should consider coordinating withdrawals with other income sources to minimize the tax impact and maximize their overall financial well-being.

Utilizing Tax-Advantaged Accounts

Health Savings Accounts (HSAs) and other tax-advantaged accounts can be used to pay for qualified expenses, reducing the need for in-service withdrawals and minimizing the tax impact.

Strategies to Minimize Consequences of In-Service Withdrawals


In-service withdrawals provide individuals with the option to access funds from their qualified retirement accounts, such as 401(k), 403(b), and 457(b) plans, while still employed by the plan sponsor.

While these withdrawals can be a valuable financial tool in cases of financial hardship, unexpected medical expenses, disability, divorce, education costs, or home-related expenses, they also come with potential tax consequences, including income tax and early withdrawal penalties.

Eligibility for in-service withdrawals depends on factors such as age, length of employment, and plan-specific rules.

Alternatives to in-service withdrawals, such as loans from retirement accounts, emergency funds, insurance products, debt consolidation, and other income sources, can help individuals manage financial needs while preserving retirement savings.

Individuals should review plan documents, determine eligibility, and understand the tax implications when considering in-service withdrawals.

Rolling over funds to another eligible retirement account, spreading withdrawals over multiple years, and utilizing tax-advantaged accounts are strategies to minimize the consequences of withdrawals.

Ultimately, individuals should consult financial professionals to make informed decisions that align with their retirement planning goals.

In-Service Withdrawal FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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