Having liquid assets is absolutely crucial because you can quickly convert them into cash if you ever need to, but is your 401k a liquid asset?

In this article, we will answer questions related to liquid assets and a 401.

Is a 401k a liquid asset or not?

It depends, if you are still working and have not reached retirement age, then your 401k is not a liquid asset. The reason is that you cannot withdraw the money from it, without getting a penalty of 10%.

Only when you reach you reach the threshold age of 59 ½ will you be able to withdraw the funds in your 401k without getting a penalty. This is when the 401k becomes a liquid asset because you can easily withdraw money from it, without any penalty.

Individuals that are younger than 59 years old and 6 months, will receive a penalty if they withdraw any funds from their 401k. This is commonly called a premature withdrawal, although there are exceptions to it.

There are exceptions to the early-withdrawal penalty under these conditions:

  • Death 
  • Disability
  • Medical expenses
  • Child support
  • Spousal support 
  • Military duty

Rule 55

If you are between 55 years old and 59 ½ and you become unemployed, by either being fired, laid off, or simply quitting, you are able to withdraw the money from your 401k without any penalty, under Rule 55. 

Additionally, you can only withdraw from the 401k with the last company you worked with. However, Rule 55 does not apply to IRAs.


Substantially Equal Periodic Payment (SEPP) also allows you to withdraw money from your 401k without any early withdrawal penalty, and before you reach retirement age. The SEPP determines a periodic payment plan, that allows you to withdraw money every year penalty-free.


Depending on the 401k you have you may be eligible for a Hardship Distribution, which allows you to withdraw money from your 401k without paying a penalty. However, the reasons for the early withdrawal need to be approved, and you need to contact your employer to make sure you are eligible for a Hardship Withdrawal.

401k Loan

Lastly, if you really need to use the funds on your 401k but you want to avoid any penalty, you might consider a 401k loan. This allows you to get financing while offering your 401k as a guarantee of payment.

Do you include 401k in net worth?

Yes, any type of retirement account, be it a 401k or IRA should be included when you are calculating your net worth. Although these assets may not be liquid, they are still part of your net worth and should be counted as such.

Does 401k count as liquid net worth?

Although a 401k is considered an asset, it is not a liquid asset unless you have the age of 59 ½. Therefore unless you have reached retirement age, a 401k should not count as a liquid asset. However, you can use the amount on your 401k, and discount the possible penalty of an early withdrawal, to calculate your liquid net worth.

Is your 401k considered an asset?

Yes, a 401k is a fixed asset, but depending on your age, it might not be a liquid asset. Assets represent anything you own that is valuable and can be converted into cash.

Fixed assets, represent possessions of monetary value that take some time to convert into liquidity. This includes assets like real estate or your car. Both of these examples have monetary value, but it takes longer to convert that into cash. Therefore they are considered fixed assets.

What is considered a liquid asset?

A liquid asset is any possession that you have that can be easily converted into cash. Liquid assets are extremely important to have because you can convert them into cash fast. Illiquid assets will take more time to transact, and it makes less ideal to own.

Are retirement savings liquid assets?

Retirement savings are illiquid assets unless you have already reached retirement age, and are able to withdraw funds without any penalty.

Is a 401K an investment?

Yes, a 401k is an investment account, with tax advantages that are one of the most common investment vehicles you can use to prepare for your retirement and build wealth.

A 401k is designed as a savings and investment plan. Allowing workers to get tax advantages while saving and investing for retirement.

Is 401K a fixed asset?

Yes, a 401k is a fixed asset. A fixed asset is a type of asset that takes time to convert into cash, and there is a specific process that you need to go through in order to convert the monetary value of fixed assets into liquidity.


Retirement plans like 401k are extremely useful to be able to save and invest for your retirement. They make it easy to save and use that money to invest, while also getting several tax advantages. 

Although they are not liquid assets for those individuals that have not reached retirement, they are still assets that should be accounted for when you are calculating your net worth.