Investors may start withdrawing funds from their 401(k) at age 59 1/2 and must start taking annual minimum distributions starting at age 70 1/2, explains The Motley Fool. During each withdrawal year, investors must withdraw at least the required minimum distribution and may withdraw more if they desire to do so. Government rules also allow penalty-free early withdrawals under certain circumstances, such as hardship distributions, explains the IRS. Early withdrawals not falling under the exceptions incur a 10 percent penalty.
In withdrawal years, a person with a 401(k) must take his required minimum distribution by December 31, except during his first year of withdrawals, when he has until April 1 of the next year to take his required minimum distribution, explains The Motley Fool. Many 401(k) custodians, usually financial institutions, inform customers about required minimum distributions and take care of paperwork for the IRS.
Rules allow workers who leave employers at age 55 to start withdrawing from a 401(k) through that company penalty-free, states The Motley Fool. Workers leaving certain emergency services jobs, such as firefighters and police officers, may start withdrawing as early as age 50.
To withdraw money early from a 401k under a hardship distribution, 401(k) holders must show immediate and heavy financial need, such as certain medical expenses, tuition and education expenses, or payments to avoid eviction or foreclosure of a residence, explains the IRS. The government takes into account any property and assets held before agreeing to a hardship distribution.