A 4.4% day in a retirement account: the math, and the rules on taking money out

The S&P 500 lost 4.4% on Thursday, the Associated Press reported, its worst day since April 2025. It ended the week down 2.7% and the year so far up 7.8%. Plenty of workplace retirement accounts hold funds that follow that index. What the week did in dollars, and what the IRS rules say about getting money out, follows.

One Magnolia account, worked

Take a 45-year-old in 77354 with $150,000 in a 401(k), all of it in a fund that tracks the S&P 500.

• Thursday: about $6,600 lower, at 4.4%.
• The week: about $4,050 lower, at 2.7%, after Friday's partial bounce.
• The year: if the money was all there on January 1, it started near $139,150 and is still about $10,850 ahead.

The zero case: money in a cash or stable-value option inside the same plan did not move on Thursday. A fund holding some bonds moved less than the index. The plan's statement lists what each dollar is in.

Assumptions: the fund matches the index exactly, with no fees, dividends or new contributions counted. The arithmetic is ours.

If nobody does anything

Nothing is sold, so nothing is taxed. The balance keeps moving with the fund, down or up, and payroll contributions keep buying shares at whatever the price is that pay period. Money inside a traditional 401(k) is taxed when it comes out, not when the market moves.

Taking money out before 59½

A withdrawal from a traditional account counts as income. Before age 59½ it also carries an additional tax of 10% of the taxable amount, IRS Tax Topic 558 says. The same page lists exceptions, among them:

• leaving the employer after reaching 55, for money in that employer's plan;
• total and permanent disability, or a terminal illness;
• medical bills above 7.5% of adjusted gross income;
• a series of substantially equal payments over the person's life expectancy;
• a personal or family emergency expense, a birth or adoption, or a federally declared disaster, under the limits the page sets.

On the account above: a $20,000 withdrawal by someone in the 22% bracket brings about $4,400 in federal income tax plus the $2,000 additional tax, $6,400 in all, leaving about $13,600. Texas adds no state income tax.

Borrowing from the plan

Many plans allow loans, and some do not. Where they do, the IRS loan rules set the ceiling at half the vested balance or $50,000, whichever is less. On a $150,000 vested balance, that cap is $50,000.

• Repayment generally runs five years or less, with payments at least every quarter. A loan to buy a primary home can run longer.
• A loan that falls behind schedule is treated as a distribution and taxed as income.
• A plan can require the full balance when someone leaves the job. Whatever is not repaid is reported as a distribution, unless that amount is rolled into an IRA or another plan by the tax return due date, extensions included.

The three paths, side by side

• Leave it: no tax and no paperwork. The balance rises or falls with the fund.
• Withdraw $20,000 at 45: about $6,400 in federal tax on the example above, and the money is out of the account for good.
• Borrow $20,000: no tax if it is repaid on schedule. Payments come out of each paycheck, and the borrowed dollars are out of the fund until they are paid back.

At 73: this year's required withdrawal is already set

Required minimum distributions generally start in the year a person turns 73, according to the IRS distribution FAQs. The amount is the prior December 31 balance divided by a life-expectancy factor from Publication 590-B.

That means the 2026 amount was fixed by the balance on December 31, 2025. Thursday's drop does not change it. The 2027 amount will come from whatever the balance is on December 31, 2026. A first distribution can wait until April 1 of the next year; later ones are due by December 31. A missed amount can carry a 25% excise tax, cut to 10% if corrected within two years.

Things to check on the plan statement

• Which funds the balance is in, and what share is in stocks.
• Whether the plan offers loans, and its own limits, which can be stricter than the IRS ceiling.
• The vested balance, which can be smaller than the total if employer money has not fully vested.
• For anyone 73 or older, the 2026 required amount and how much has come out so far this year.

One more date to watch: the IRS had not published the 2027 contribution limits for 401(k) plans as of Saturday. The 2027 tax brackets are out.