Can You Tap Into Your 401k When Laid Off? Here's What Changed With Crypto Now in the Mix

You’ve been laid off, and money’s tight. Your first thought might be: can I withdraw from my 401k? The short answer is yes—and with Trump’s recent policy allowing cryptocurrency investments in 401k accounts, understanding these rules just got more important.

What is a 401k in the First Place?

Born in 1981 and named after Section 401 of the Internal Revenue Code, the 401k has become the backbone of retirement security for U.S. private-sector workers. It’s a tax-deferred pension plan where both your employer and you contribute. Here’s the basic mechanics: you allocate 1% to 15% of your monthly salary to the account (within IRS limits), and your employer typically matches a portion of that contribution. The beauty? Your contributions dodge immediate taxation—you only pay income tax when you withdraw during retirement.

The $9 Trillion Shift: Crypto Now on the Menu

As of now, 401k accounts hold approximately $9 trillion in assets. Traditionally, these retirement funds were limited to stocks and mutual funds selected from your employer’s pre-approved fund management companies. You couldn’t cherry-pick individual stocks or investments outside the employer’s locked-in options. But Trump’s new executive order changes the game—cryptocurrency is now permitted within 401k portfolios, though still only through products your employer’s chosen fund company offers.

Early Withdrawal When Laid Off: The Exception to the 59.5-Year Rule

Here’s where job loss becomes relevant to your retirement savings: if you’re laid off, dismissed, or fired, you qualify for early withdrawal without the standard 10% penalty, provided you’re at least 55 years old. This is one of the few circumstances the IRS permits penalty-free access.

The normal rules are strict—you can’t touch your 401k before age 59.5 without facing that 10% penalty plus income tax on the withdrawal. But unemployment changes the equation. Other penalty-free early withdrawal scenarios include:

• Covering substantial medical bills or becoming disabled
• Unemployed for 12 consecutive weeks and using funds to pay health insurance premiums
• Death of the account holder (distribution to beneficiaries)
• Retirement, resignation, or severance after turning 55

2025 Contribution Limits and Withdrawal Rules

For 2025, the contribution cap increased to $23,500 annually, up $500 from 2024. There’s no income restriction to participate—if your employer offers it, you’re eligible.

On the flip side, once you hit 70.5 years old, you’re legally required to withdraw a minimum amount annually from your 401k. You can’t contribute beyond that age either; missing required minimum distributions triggers a penalty.

The Bottom Line for Laid-Off Workers

Losing your job doesn’t mean losing access to your 401k. If you’re 55 or older and get laid off, you can withdraw early without the typical 10% penalty. For those under 55, your options narrow—you could take a loan against your 401k or wait until 59.5 to avoid penalties. With cryptocurrency now part of the investment landscape, your 401k might offer even more diversification when you do decide to tap it, but remember: your employer still controls which products you can actually choose from.