What Are the Roth 401(k) Withdrawal Rules?

How to avoid paying taxes and penalties

Despite the fact that it's funded with after-tax dollars, a Roth 401(k) account is not immune to taxes and potential penalties if you don't know how rules surrounding withdrawals. Understanding the requirements will keep you from losing part of your retirement savings or scrambling to pay an unforeseen tax penalty. These taxes and penalties are one more reason to avoid making withdrawals for any reason but a serious emergency. Here's what you need to know to keep your retirement funds safe.

Key Takeaways

  • Understanding the rules about Roth 401(k) accounts can keep you from losing part of your retirement savings.
  • Contributions and earnings in a Roth 401(k) can be withdrawn without paying taxes and penalties if you are at least 59½ and had your account for at least five years.
  • Withdrawals can be made without penalty if you become disabled or by a beneficiary after your death.
  • Rollovers allow you to avoid taxes on Roth 401(k) earnings.
  • You can avoid taxes and penalties by taking a loan from your Roth 401(k) as long as you follow the repayment rules.

Roth 401(k)s: The Basics

A Roth 401(k) includes a combination of the features of a traditional 401(k) and a Roth IRA. Though not all companies with employer-sponsored retirement plans offer a Roth 401(k), they are increasingly popular.

Unlike a traditional 401(k), contributions are made with after-tax dollars and are not deductible. However, you don't pay taxes on withdrawals when you retire. For 2022, you can contribute up to $20,500 per year ($19,500 per year in 2021), or $27,000 if you are age 50 or older ($26,000 in 2021).

Roth 401(k) Withdrawal Rules

To make a qualified withdrawal from a Roth 401(k) account, retirement savers must have been contributing to the account for at least the previous five years and be at least 59½ years old. Withdrawals can be made if the account holder becomes disabled or passes away; in this case, the funds would go to the beneficiaries of the account.

The terms of Roth 401(k) accounts also stipulate that required minimum distributions (RMDs) must begin by age 72. That distribution age is 70½ if you reached that age by Jan. 1, 2020. If you're still working at age 70½, you don't have to take RMDs from the account of the employer for which you currently work. However, if you own a 5% or larger share of the employing company, the distribution must begin at age 72 regardless of employment status.

Unlike Roth 401(k)s, Roth IRAs are not subject to RMDs. Because contributions to a Roth plan are made with after-tax dollars, you do not need to pay income tax on qualified distributions, though you still have to report them to the IRS on Form 1099-R when filing your taxes.

Unqualified Withdrawals

If a withdrawal is made from a Roth 401(k) account that does not meet the above criteria (if you're at least 59½ and the account is at least five years old), it is considered early or unqualified. Unqualified withdrawals are subject to income taxes and a 10% IRS tax penalty on some but not necessarily all of the amount you take out.

You can withdraw a sum equivalent to the contributions from a Roth 401(k) without paying a penalty or taxes because Roth contributions are made with after-tax dollars. Any distributed earnings, though, are liable for taxes and penalties.

There is one catch, though. Early withdrawals have to be prorated between (nontaxable) contributions and (taxable) earnings. To calculate the portion of the withdrawal attributable to earnings, simply multiply the withdrawal amount by the ratio of total account earnings to account balance.

For example, if your account balance is made up of $9,000 in contributions and $1,000 in earnings, then your earnings ratio is 10% ($1,000 ÷ $10,000). In this case, a $4,000 withdrawal would include $400 in taxable earnings. This $400 would need to be included in the gross annual income reported to the IRS on your taxes. There'd also be a 10% tax penalty on the $400. There are no taxes or fees assessed to the other $3,600.

You can't often withdraw retirement savings and not pay taxes, However, on March 27, 2020, President Trump signed the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. It allowed withdrawals of up to $100,000 from traditional or Roth 401(k) for 2020 only without the 10% penalty for those under age 59½.


Penalties for those under age 59½ who withdraw money from traditional or Roth IRAs or 401(k)s went back into effect starting Jan. 1, 2021.

Rolling Over Funds in a Roth 401(k)

You can avoid taxation on your earnings if your withdrawal is for a rollover. If the funds are simply moving into another retirement plan or a spouse's plan via direct rollover, no additional taxes are incurred.

If the rollover is not direct (the funds are distributed to the account holder rather than from one institution to another), the funds must be deposited in another Roth 401(k) or Roth IRA account within 60 days to avoid taxation.

When you do an indirect rollover, the portion of the distribution attributable to contributions cannot be transferred to another Roth 401(k) but it can be transferred into a Roth IRA. The earnings portion of the distribution can be deposited into either type of account.

Borrowing from a Roth 401(k)

Although there's no tax-free way to withdraw tax-free money from your Roth 401(k) before age 59½, taking a loan from your account is a way to use the funds for current needs without diminishing your retirement savings. Many 401(k) plans, Roth or traditional, allow for the account holder to take out a loan of $10,000 (or 50% of the account balance, whichever is greater), but loans cannot exceed $50,000.

Loans must be repaid within five years in generally equal payments made at least quarterly. The benefit is that you are borrowing money from yourself, and all payments and interest charged go directly back into your retirement account. However, failure to repay the loan as stipulated, however, may result in it being considered a taxable distribution. You are also often not permitted to make additional 401(k) contributions until the loan has been paid off.

When Can I Withdraw Roth 401(k) Funds?

In general, you can you often begin withdrawing Roth 401(k) earnings when you are 59½ years old. There is some greater leniency on withdrawal rules for Roth 401(k) contributions.

What Is the Penalty for Early Roth 401(k) Withdrawal?

If you withdraw funds from a Roth 401(k) early, you must pay taxes on the non-contribution portion of your withdrawal. In addition, the IRS assesses a 10% penalty on the non-contribution portion. There are no taxes or penalties for the contribution portion.

Do I Pay Taxes on Roth 401(k) Withdrawals?

If you withdraw earnings too early, you are subject to taxes on the earnings portion of your early withdrawal. There are no tax implications if you withdraw earnings when you are eligible to withdraw them.

How Much Can I Contribute to my Roth 401(k)?

Younger investors can contribute up to $20,500 to their Roth 401(k). Investors that are 50 or older can contribute up to $27,000.

The Bottom Line

When household bills start piling up or unexpected expenses crop up, reaching into your retirement savings may seem appealing in the short term. Retirement accounts like Roth and traditional IRAs and 401(k) plans are not designed for easy access, and there are consequences to using money in those accounts before you're eligible to do so.

If you raid your retirement funds without knowing the rules, you risk losing part of your savings to penalties and tax payments. A Roth 401(k) account is not immune to these problems, despite the fact that it's funded with after-tax dollars.

Advisor Insight

Scott Bishop, CPA, PFS, CFP®

Avidian Wealth Management, LLC, Houston, TX


Assuming that you no longer work for your company, your account statements should indicate whether you have the five years completed, but if not, you can find out from the plan administrator. The first year the Roth 401(k) became available was 2006, and if your first contribution was before 2014, your plan is now fully qualified tax-free upon distribution.

If you are still employed and eligible for withdrawal, it’s best to roll it over to a Roth IRA. If your trades generate gains in the taxable account, you will owe annual taxes on the gains, but if you trade in a Roth IRA, all gains are tax-deferred until you have had a Roth IRA for five years. Even if you do not have a Roth IRA right now, the rollover of a qualified Roth 401(k) will be treated as regular Roth IRA contributions.

Article Sources
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  4. Internal Revenue Service. "Rollovers of Retirement Plan and IRA Distributions."

  5. Internal Revenue Service. "Traditional and Roth IRAs."

  6. Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500."

  7. Internal Revenue Service. "Retirement Topics - Designated Roth Account."

  8. Internal Revenue Service. "Retirement Topics — Required Minimum Distributions (RMDs)."

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  11. Internal Revenue Service. "Publication 4530 (Rev. 7-2021)," Page 3.

  12. Congress.gov. "H.R.748 - CARES Act."

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  14. Internal Revenue Service. "Retirement Topics — Plan Loans."

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