Many retirement plans, including 401(k)s and 403(b)s, are designed to encourage long-term savings by imposing restrictions on withdrawals before reaching retirement age. However, some plans offer an option known as an in-service withdrawal, allowing participants to access their funds while still employed. While early withdrawals typically trigger a 10% penalty if taken before age 59½, several exceptions can help individuals avoid this penalty. What Are In-Service Withdrawals? An in-service withdrawal is a distribution taken from an employer-sponsored retirement plan while the participant is still working for the company. The availability of this option depends on the specific terms of the plan, as employers are not required to offer it. Some plans allow withdrawals only from vested employer contributions or after a certain age, such as 59½. Others may permit access to specific sources, such as rollover funds or after-tax contributions. Though in-service withdrawals provide financial flexibility, they come with significant tax implications. Unless the funds are rolled over into another qualified retirement account, the distribution is generally subject to income tax. Additionally, if the participant is under 59½, a 10% early withdrawal penalty may apply