How to parse the response body in Java, when the HTTP request has return status 401

Try the following approach without needing a custom handler. The idea is to get the response as a string from the HttpStatusCodeException, and then you can convert it to your object. For the conversion I used the Jackson’s ObjectMapper:

        try {

            restTemplate.postForObject(url, pojoInstance, responseClass);

        } catch (HttpStatusCodeException e) {

            if (e.getStatusCode() == HttpStatus.UNAUTHORIZED) {

                String responseString = e.getResponseBodyAsString();

                ObjectMapper mapper = new ObjectMapper();

                CustomError result = mapper.readValue(responseString,
                        CustomError.class);
            }
        }

Update:
Usage of a different factory may also help since there is a bug in the default one related to your issue (see comment below):

RestTemplate template = new RestTemplate(new HttpComponentsClientHttpRequestFactory());