403(b) and 401(k) Withdrawals: Rules, Penalties, and Exceptions
Early withdrawal rules, the rule of 55, loans, hardship withdrawals, RMDs, and a comparison of 403(b) vs 401(k) mechanics. Updated 26 October 2026.
Early withdrawal (before age 59.5)
Default: 10% penalty plus ordinary income tax
Any distribution from a traditional 403(b) or 401(k) before age 59.5 is subject to 10% early withdrawal penalty plus ordinary income tax at your marginal rate. On $30,000 withdrawn at a 22% bracket: $3,000 penalty + $6,600 income tax = $9,600 gone. You net $20,400 from $30,000. This is why the rule is almost always: do not cash out.
Exceptions to the 10% penalty
Income tax still applies even when the 10% penalty is waived. These exceptions only eliminate the extra 10% penalty.
Death
Distributions to beneficiaries upon account holder's death are exempt from the 10% penalty.
Disability
Total and permanent disability. Must be unable to engage in any substantial gainful activity.
Medical expenses
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Substantially Equal Periodic Payments (SEPP / 72(t))
Series of equal payments over 5 years or until age 59.5, whichever is longer. Complex calculation methods; get professional advice.
Rule of 55
Separation from service in the year you turn 55 (50 for public safety employees in governmental plans). Only applies to that employer's plan, not IRAs.
Qualified domestic relations order (QDRO)
Distributions to an alternate payee (former spouse) under a court order incident to divorce.
Qualified birth or adoption
Up to $5,000 per child for qualified birth or adoption expenses. Income tax still applies; you can choose to repay it into an eligible retirement account within 3 years.
Emergency personal expense
One distribution per calendar year of up to $1,000 for personal or family emergency expenses. SECURE 2.0 provision. Repayable within 3 years; no further emergency distribution in that window unless it is repaid.
Domestic abuse victim
Up to the lesser of $10,500 (2026, inflation-indexed from $10,000) or 50% of the vested balance, within one year of domestic abuse by a spouse or domestic partner. SECURE 2.0.
Federally declared disaster
Up to $22,000 from retirement accounts in federally declared disaster areas. SECURE 2.0.
Terminal illness
Certified terminal illness with life expectancy of 84 months or less. SECURE 2.0.
Rule of 55
If you leave your employer in the calendar year you turn 55 (or after), you can take distributions from that employer's 403(b) or 401(k) without the 10% penalty. You still owe income tax. The rule applies only to that specific plan, not to IRAs or previous-employer plans.
For qualified public safety employees (police, fire, EMS), the rule applies at age 50. Some governmental 403(b) plans extend additional in-service withdrawal rights at earlier ages.
Plan loans
Required Minimum Distributions (RMDs)
Under SECURE 2.0, RMDs begin at age 73, rising to 75 for those born in 1960 or later. If you are still working for the employer sponsoring the plan and do not own 5% or more of it, you can usually delay RMDs from that plan until the year you retire. Both 403(b) and 401(k) traditional accounts are subject to RMDs. Roth 401(k) and Roth 403(b) accounts are exempt from RMDs during the owner's lifetime (effective for 2024 tax year and beyond).
Missing an RMD: a 25% excise tax on the amount not distributed (reduced to 10% if corrected within 2 years). The IRS has streamlined the correction process under SECURE 2.0 but the best approach is to not miss the RMD in the first place.
403(b) vs 401(k) withdrawal comparison
| Withdrawal type | 403(b) | 401(k) |
|---|---|---|
| Normal (59.5+) | Ordinary income tax only | Ordinary income tax only |
| Early (under 59.5) | 10% penalty + income tax (exceptions apply) | 10% penalty + income tax (exceptions apply) |
| Rule of 55 | Yes (age 50 for public safety) | Yes (age 50 for public safety) |
| Loans | Yes in ERISA plans; may not be available in non-ERISA | Yes, most plans |
| Hardship withdrawal | Yes; SECURE 2.0 simplified self-certification | Yes; SECURE 2.0 simplified self-certification |
| In-service withdrawal (still employed) | Generally not before 59.5; governmental plans more flexible | Generally not before 59.5 |
| RMD starting age | 73 (75 if born 1960+); Roth exempt | 73 (75 if born 1960+); Roth exempt |