As of 2015, owners of 401(k) plans can take penalty-free distributions when they reach age 59 1/2, reports the Internal Revenue Service. Early distributions are subject to a 10-percent penalty tax unless they qualify as exceptions. Plan owners must initiate required minimum distributions from their accounts when they reach age 70 1/2, or when they retire, if they keep working past age 70 1/2.
Unless 401(k) owners age 59 1/2 or older roll over distributions they take from their accounts into other qualified retirement plans or IRAs, they must pay normal federal income tax on the distributions, explains the IRS. Exceptions to the early distribution penalty tax include withdrawals the owner makes because of his complete disability, qualifying medical expenses or financial need due to a disaster. Plan owners who leave work when they are at least age 55 or initiate a series of substantially equal periodic payments can also take penalty-free early distributions. If plan owners die, beneficiaries can take distributions without penalty.
Owners of 401(k) plans who reach age 70 1/2 must begin taking required minimum distributions or pay a penalty tax of 50 percent of the amount that should have been distributed, according to the IRS. Plan owners who continue to work can delay initiating required distributions until they retire unless they own 5 percent or more of the business sponsoring the plan. Although plan owners can delay receiving the first required distribution until April 1 of the year after they turn 70 1/2, they must then take the second distribution by Dec. 31 of the same year. Owners calculate annual required minimum distributions by dividing the balance in the plan as of Dec. 31 of the previous year by their estimated lifetime, according to an IRS table.