As I’m reentering a society after the pandemic, I had the pleasure to chat with a family friend about early retirement strategies. One of the many topics that popped up was about accessing age-locked retirement funds - namely 401(k)s and IRAs. Conventional wisdom is that these account stay locked until you hit a certain age, but funds from these accounts are accessible as long as you’re ready to jump through some hoops.

I put together this post to test my understanding of the subject, so please let me know if there’s something I misunderstand. I used the IRS and the United States Code websites as the sources of truth, and I link to each throughout this piece. The links are likely to get out of date within a few months to a year though, so don’t hold your breath for those.

This article is for retirement accounts in the United States only.

Tax-advantaged accounts

There are 5 tax-advantaged retirement vessels that I’m somewhat familiar with:

  • Traditional 401(k)
  • Roth 401(k)
  • Traditional IRA
  • Roth IRA
  • HSA

These are not the only tax-advantaged accounts out there for different employment situations, but I think these are fairly common. Here’s a quick reference for each with some stats as of June 2021:

401(k) Roth 401(k) IRA Roth IRA HSA
Employer-sponsored? Yes Yes No No Sometimes
Allows for employer match? Yes Yes No No Yes
Tax-advantaged contrib. limit $19,500 + match $19,500 + match $6,000 $6,000 $3,600
Total contrib. limit $58,000 $58,000 $6,000 $6,000 $3,600
Contrib. increase at age 50+ $6,500 $6,500 $1,000 $1,000 $1,000 (55+)
Taxation Deferred Exempt Deferred Exempt Exempt/free
Withdrawal timeline 59 ½ 59 ½ 59 ½ 59 ½ or 5 years Qualified/65
Mandatory withdrawal 70 70 72 N/A N/A
Early withdrawal penalty 10% 10% 10% 10% 20%

I dig into each a little bit more below.

Traditional and Roth 401(k)

401(k) is an employer sponsored plan: it allows you to invest in a choice of funds selected by your employer. 401(k) often comes with an employer match, which allows the employer to contribute additional amount on top of the tax-advantaged contribution limit. At age 50, you can contribute additional amount in “catch-up contributions”.

There are two limits for 401(k) plans: the tax-advantaged contribution limit (at $19,500/year in 2021, not including employer match), and the total contribution limit (at $58,000) (IRS website). You don’t get any tax benefits from contributing to your total contribution limit, but it’s primarily used for “401(k) megabackdoor” - to funnel money into a tax-advantaged Roth IRA. The limits are shared across Traditional and Roth 401(k).

From what I understand, Roth 401(k) also requires the employer match to be contributed to a Traditional 401(k) account.

Traditional 401(k) is tax-deferred, meaning you don’t pay taxes on the amount contributed, but you pay taxes on withdrawal – this includes paying taxes on the principal (the investment income). In contrast, Roth 401(k) is tax-exempt. You pay your taxes in advance, and investment income or withdrawals are not taxed.

Early withdrawal penalty of 10% applies if you attempt the funds before age 59 ½, but keep on reading to learn how to get around that. You must begin withdrawing from your 401(k) by age 70.

Traditional and Roth IRA

IRA is an individual plan which allows for tax-advantaged investments. Direct contribution limit is at $6,000, however rollovers are not capped. Meaning the above mentioned 401 megabackdoor funds don’t follow the limit. At age 50, you can contribute additional $1,000 a year. The limits are shared across Traditional and Roth IRAs.

There’s technically an income limit on Roth IRA contributions (MAGI of $140,000 single or $208,000 married), but Traditional IRA contributions can be rolled over into Roth IRA (, effectively nullifying the limit. This is referred to as “IRA backdoor”.

Just like with 401(k), Traditional IRA is tax-deferred: you get a tax refund for contributing to it, but you’ll have to pay back those taxes on withdrawal. Roth IRA front loads the taxes, making earnings and withdrawals tax free.

Traditional IRA can be accessed at age 59 ½. Roth IRA can be accessed either immediately upon reaching age 59 ½, or after holding IRA account for 5 years. There’s a 10% withdrawal penalty otherwise, and you must begin withdrawing Traditional IRA contributions by age 72 (Roth IRA doesn’t have the mandatory withdrawal period).


Health Savings Account is another tax-advantaged investment, but it’s not tied to the employer (however employers might choose to offer an HSA plan). HSA contribution limit is at $3,600 for 2021, which includes employer match if employer offers any. This can be increased by $1,000 if you’re over the age of 55.

HSA is effectively tax-free, meaning that you don’t pay when you contribute, nor do you pay when you withdraw (but there are caveats). HSA can be withdrawn to pay for qualified medical expenses without a penalty. Reimbursing for expenses does not have an expiration date, as long as the expense was incurred after your HSA was established. You can also withdraw HSA without qualified reasons once you hit the age 65 (which is higher than 59 ½ used for 401(k) and IRA).

Early withdrawals

Now that the basics are out of the way, let’s discuss early withdrawals from each of these accounts.

Traditional and Roth IRA

Let’s look into IRAs first, since the most common way to access 401(k) funds early leverages IRA peculiarities.

5-year rule

I’ve also heard the 5-year rule referred to as a “Roth conversion ladder”.

The most obvious candidate for early access is Roth IRA. Roth IRA contributions (money you put in), can be accessed at any time without a penalty or paying additional taxes. Roth IRA distributions (aka the principle, or the money you’ve earned) can be accessed using what’s referred to as a “5-year rule”.

There are confusingly three 5-year rules when it comes to IRAs, and even more confusingly we care about two of them (the third rule deals with beneficiaries).

The first 5-year rule lets us access Roth IRA distributions within 5 years of owning the Roth IRA account. Simply enough, if you’ve had Roth IRA account for more than 5 years, you can access both the money you put in, and the money you’ve earned.

The second 5-year rule covers rollovers. Rollovers from Traditional IRA or Roth 401(k) need to marinate for 5 years (per transaction) before being accessible. So if you converted between your Traditional IRA and Roth IRA twice – in 2021 and 2022 – you’ll be able to access the money in 2026 and 2027 respectively.

This means that Roth IRA can be accessed if you hold the account for at least 5 years, and Traditional IRA can be converted to Roth IRA (a taxable event) and accessed penalty-free after 5 years.

For example, if you opened a Roth IRA account in 2015, and it’s now 2021 – you can access all the funds at any time without paying taxes.

In a more complex example, you’d convert the Traditional IRA to Roth IRA, and access the resulting money after 5 years:

  1. Convert a certain amount from Traditional IRA to Roth IRA
  2. Pay taxes on the transaction
  3. Wait 5 years (for each transaction)
  4. Withdraw transaction amount + earnings

This works out similarly for Roth 401(k) to Roth IRA conversion (but with less steps and without taxes):

  1. Convert any amount from Roth 401(k)
  2. Wait 5 years
  3. Withdraw transaction amount + earnings

72(t) SEPP

72(t) SEPP (Substantially Equal Periodic Payments) can be used to sign up for a payment plan from your Traditional IRA (technically you’re able to use SEPP for your Roth IRA as well, but this will incur double taxes). This is quite a commitment, and you’ll be receiving periodic payments from your IRA until you hit the age 59 ½ (or for 5 years, whichever is longest).

For a Traditional IRA example, you can sign up for SEPP to receive $5,000 annually. This means that each year (until you turn 59 ½ or 5 years passes – whichever is longest) you will pay taxes on those $5,000, and withdraw the difference.

Additionally, IRA can be used to pay for large medical expenses (within the same year), high education expenses, home-related expenses ($10,000 lifetime limit), and a few more niche cases.

10% penalty

10% penalty sounds large, but it’s really not a terrible choice if the other options don’t work (although I don’t see why they wouldn’t). Given the tax-advantage growth that these assets have been enjoying, 10% penalty is not a steep price to pay. Although understandably loss aversion kicks in, and either a 5-year rule or the 72(t) SEPP sound preferable to paying the penalty.

In case with the Traditional IRA, the penalty would have to be paid in addition to paying taxes on withdrawn amount. Roth IRA only imposes a penalty if you didn’t wait for 5 years since the account creation or the rollover transaction.

Traditional and Roth 401(k)

401(k) can be accessed early (before the required 59 ½ age) in multiple ways. Both the 5-year rule (aka the Roth conversion ladder) and the 72(t) SEPP can be used to access 401(k) funds.

Roth conversion ladder leverages the ability to rollover Traditional 401(k) to Traditional IRA, and subsequently convert Traditional IRA to Roth IRA (a taxable event). Within the 5 years of that second conversion, you should be able to access the money.

For example, when getting ready for retirement, you may convert all your Traditional 401(k) balance to Traditional IRA. Then each year, you could do the following (this may look familiar from the above):

  1. Convert $5,000 from Traditional IRA to Roth IRA
  2. Pay taxes on the transaction ($5,000)
  3. Wait 5 years (for each transaction)
  4. Withdraw transaction amount ($5,000)

This works with Roth 401(k) to Roth IRA as well. It’s simpler too, as Roth 401(k) to Roth IRA conversion is non-taxable. Convert Roth 401(k) to Roth IRA, wait 5 years, and withdraw at your own leisure.


As you may have guessed, HSA balance can also be accessed before the age 65. But it does come with a caveat.

You see, HSA allows you to pay for qualified medical expenses tax-free. No taxes on withdrawal, tax-free growth, and no taxes when paying out. However, these qualified medical expenses don’t expire. As long as you had an HSA account at a time of medical expense occurring, you can get a refund on that medical payment.

This is something that we’re doing – banking medical receipts (which isn’t hard, given the overpriced American healthcare system) to cash in at a later date.

There’s a number of ways to access retirement accounts in the United States. Be it through Roth conversion ladder, 72(t) SEPP, or even by using old medical receipts. And now I have somewhere to look back to once I inevitably forget how any of this works.