Can You Withdraw Money From Your 401(k) at Age 59 1/2 Without Penalties or Restrictions?

Account holders age 59 1/2 and over can withdraw money from 401(k) plans without penalties or restrictions provided they begin withdrawals by age 70 1/2 or when they retire, reports the IRS. Otherwise, most account holders are subject to a penalty tax if they do not initiate regular withdrawals.

Holders must either withdraw the entire interest in 401(k) plans or initiate minimum required distribution payments by April 1 of the year following the year they turn 70 1/2, or the calendar year of retirement after 70 1/2, according to the IRS. If account holders do not withdraw the minimum amount, a 50 percent penalty tax is levied on the amount that should have been distributed.

Required minimum distributions are calculated using IRS life expectancy and minimum distribution tables, states Bankrate. The precise distribution rate is adjusted year by year. There are three separate uniform lifetime tables for standard account holders, account holders with spouses who are much younger than they are, and beneficiaries of account holders.

Although employees who are still working can wait until retirement after the age of 70 1/2 to receive 401(k) distributions, those who own 5 percent or more of a business must begin withdrawals at age 70 1/2, even if they have not retired, or they become subject to the penalty tax, as reported by the IRS.