What Is an In-Service Distribution from Your 401(k)?

Most 401(k) plan withdrawals happen after you retire or leave your job—but in some cases, your plan may allow you to take money out while you’re still working. These are called in-service distributions.

In-service distributions give you access to a portion of your retirement savings before separation from your employer, but they come with important eligibility rules, tax implications, and long-term considerations.

An in-service distribution is a withdrawal from your 401(k) account while you’re still actively employed. It’s different from a hardship withdrawal or loan—it’s a permanent withdrawal of funds.

Your ability to take one depends on your plan’s specific rules and the source of the money (e.g., deferrals, employer contributions, rollover funds).

Plans are not required to allow in-service distributions, but if yours does, the most common types are:

1. Age-Based In-Service Distributions

• Available once you reach age 59½

• Often permitted from elective deferrals (your contributions) and employer contributions

• No early withdrawal penalty, but distributions are taxable

2. Rollover Distributions

• If you’ve rolled money into your 401(k) from another plan or IRA, those funds may be withdrawn at any time—even before age 59½—if allowed by the plan

• Still subject to income tax if pre-tax and not re-rolled into another retirement account

3. After-Tax Contributions

• If your plan allows after-tax (non-Roth) contributions, these may be eligible for in-service rollover or distribution

• Special tax handling applies—part of the withdrawal may be taxable, and part may be returned tax-free

Important: Plans differ. Always check your Summary Plan Description (SPD) or contact NestEggs to understand what’s allowed.

• Traditional (Pre-Tax) Funds: Taxable as ordinary income when withdrawn

• Roth 401(k): Qualified withdrawals (age 59½ + 5 years) are tax-free

• Before Age 59½: May trigger a 10% early withdrawal penalty, unless an exception applies

To avoid penalties and taxes, you can consider a direct rollover to another qualified plan or IRA.

• To consolidate accounts into an IRA with more investment options

• To work with a personal financial advisor outside of the plan

• To access after-tax contributions for Roth conversions

• To withdraw funds for personal needs (if age 59½ or if penalty exception applies)

• Reduces your retirement savings and potential long-term growth

• No repayment option, unlike a 401(k) loan

• May trigger taxes or penalties

• You may lose the benefit of lower-cost institutional funds available in the plan

• Could affect Required Minimum Distributions (RMDs) if not rolled over correctly

Always consult a tax or financial advisor before initiating an in-service distribution.

1. Log in to your 401(k) account or contact the plan’s customer service center

2. Navigate to the “Withdrawal Request” menu option found under “Manage”

3. Confirm eligibility based on your age and contribution sources

4. Choose the amount and whether you want a direct distribution or rollover

5. Submit the request and review tax withholding preferences

Please note that processing time can vary. If you're concerned about market volatility while your request is being processed, consider transferring a portion of your account to a capital preservation asset in the plan, like a money market deposit account or a money market fund.

In-service distributions can be a helpful financial tool—but only if used wisely. Be sure to understand the rules and long-term consequences before making a withdrawal from your retirement account while still working.