Thinking about using your retirement savings early?

Why it may feel tempting

If you've recently lost a job, started a new one, or are simply trying to stretch every dollar, concerns about cash flow can be natural. Expenses that once felt manageable may now compete for priority, and dipping into your retirement account can seem like an easy solution.

After all, that’s your money—even if it was intended for the future. But before you dip into it, it’s important to understand the different ways to access those funds early and the trade-offs that come with each choice.

Two common ways to tap your retirement funds early

If you need access to a large sum of money—like during a job transition—there are generally two main ways to get cash from retirement accounts before traditional retirement age:

• Take a loan from your 401(k) or 403(b)—if your current employer’s plan allows it.
• Make a withdrawal from your 401(k), 403(b), or IRA.

These options work very differently. The choice you make can have a lasting effect on your long-term financial security.

Borrowing from your retirement account

Not all retirement accounts allow loans, but some do—and the rules vary quite a bit. With 401(k)s and 403(b)s, you can often borrow from your account and pay yourself back with interest, however you need to be actively employed with the company sponsoring the plan.

If you leave that employer—whether you’re laid off or by choice—you can't borrow from the plan anymore. Your only option would be through a new employer's retirement plan, and only if you transfer your old account there and the plan permits loans. Some employer plans may have different loan terms or may not offer loans at all, so it's worth checking your specific plan details.

Even if you do have access to a loan, repayment terms can be strict. Most plans require you to repay the outstanding balance within a short period—often 60 to 90 days—if you leave your job. If you can't, the loan balance is reclassified as a withdrawal, which can trigger income taxes and a 10% early withdrawal penalty if you're under age 59 1/2.

Making withdrawals from your retirement accounts

Withdrawals are more straightforward—you take the money out, and that's it. No paying it back. But here's where retirement accounts differ quite a bit:

• 401(k)s and 403(b)s: You can withdraw from old employer accounts anytime, but current employer plans often restrict withdrawals to specific hardships while you're still working there.
• Traditional IRAs: You can withdraw anytime, but you'll pay income taxes plus a 10% penalty if you're under 59½ (unless you qualify for exceptions).
• Roth IRAs: Your contributions can come out anytime, tax and penalty-free. Your earnings—money you’ve received as a result of your investments—that face the age 59½ rule and penalties.
• SEP and SIMPLE IRAs: These are similar to traditional IRAs, but SIMPLE IRAs have a 25% penalty if you withdraw within the first two years.

The tax hit is usually the biggest sting. Any withdrawal from traditional retirement accounts gets added to your taxable income for the year—which could bump you into a higher tax bracket. And if you're under 59½, that 10% penalty applies on top of regular taxes.

The 60-day IRA rollover option

If you have an IRA, there's one limited alternative withdrawal: the 60-day rollover rule. This allows you to take money out for up to 60 days without taxes or penalties—if you return the full amount to the same or another IRA within that window.

Think of it as a short-term, interest-free loan to yourself. But it comes with significant risk. Miss the 60-day deadline—even by a single day—and the IRS will treat it as a permanent withdrawal, applying income taxes and early withdrawal penalties. For someone facing reduced income, that outcome could make your financial situation even harder.

What you give up by using retirement money early

The most immediate trade-off is clear—you'll have less money saved for retirement. But there's also a hidden cost: lost growth potential. For example, $10,000 withdrawn today could double—or more—over the next decade if left invested. That's why financial advisors often recommend exploring all other resources before tapping retirement accounts.

Be strategic and kind to yourself

If you've been laid off or are earning less at a new job, dipping into retirement savings can feel like the only option. If you do decide to take that step, remember to:

• Meet with a financial consultant as soon as possible.
• Understand the tax impact before you act.
• Know the repayment rules if you’re taking a loan.
• Withdraw only what you need to cover your shortfall.
• Plan to replenish your account once your income stabilizes.

This is a difficult moment, but it's not permanent. Balancing today's needs with tomorrow's security takes care and planning—but with the right information, you can move forward with confidence.