As of 2015, owners of 401(k) retirement plans can withdraw funds without penalty once they are 59 1/2 years old, reports the Internal Revenue Service. Early distributions are subject to penalty taxes unless they qualify as exceptions. Owners of 401(k) plans must initiate required minimum distributions at age 70 1/2.Continue Reading
Owners of 401(k) plans pay only standard income tax on funds they withdraw after they reach age 59 1/2, but they pay an additional 10 percent penalty tax on funds they withdraw early, explains the IRS. Exceptions to the penalty tax include withdrawals made after the complete disability of the plan owner, when military reservists are called to active duty, for medical expenses that total 10 percent or more of adjusted gross income, and to pay money owed to the IRS. Owners can also receive early distributions without penalty if they are made in the form of substantially equal periodic payments. Additionally, those retiring at age 55 or later can begin withdrawing funds from 401(k) plans penalty-free.
Although 401(k) owners must begin required minimum distributions when they reach 70 1/2, they can delay the distributions until they retire as long as they do not own 5 percent or more of the business that sponsors the plan, according to the IRS. They can also delay the first distribution until April 1 of the year after they turn 70 1/2, but then they must make the next withdrawal by Dec. 31 of the same year. Plan owners calculate required distributions by dividing the amount in the account as of Dec. 31 of the previous year by their estimated life expectancy.Learn more about Financial Planning