Mandatory 401(k) withdrawals, also known as required minimum distributions, must begin when the account holder turns 70 1/2 years old. They are calculated by dividing the balance in the account as of Dec. 31 of the previous year by the life expectancy of the account holder based on IRS tables.
Holders of 401(k) amounts have until April 1 of the year after they turn 70 1/2 to initiate required minimum distributions, but if they delay taking the first distribution until April 1, they must take the next distribution by Dec. 31 of the same year. Failure to begin and continue yearly required minimum distributions results in a penalty tax of 50 percent of the amount that should have been distributed. Those 70 1/2 or over with 401(k) plans can delay required minimum distributions without penalty while they are still working, but when they retire, they must initiate distributions by April 1 of the following year.
The life expectancy table used to calculate distributions varies depending on the age of the account holder's spouse and whether the spouse is the sole beneficiary. Although the administrator of the 401(k) plan may help with calculating distributions, it is the account holder's responsibility to be sure the distributions are accurate. The account holder may take more than the minimum distribution, but the excess does not count toward the following year's mandatory withdrawal.