Account holders who are 59 1/2 years and older or those experiencing a unique circumstance such as financial hardship may receive distributions from a 401(k) plan without penalty or with limited penalties, according to the Internal Revenue Service. Other account owners may withdraw distributions but incur significant penalties.Continue Reading
After age 70 1/2, account holders may be required to begin receiving distributions from their 401(k) plans, explains the IRS. Distributions from 401(k) plans are taxable if they are not rolled over into another retirement plan. The administrator of the account plan may choose a minimum distribution amount for the beneficiary to receive each year but must usually obtain permission to distribute funds from accounts with a balance of $5,000 or more.
Account holders who are younger than 59 1/2 must normally meet hardship qualifications, have a 401(k) balance in a plan that terminates or leave the employer providing the 401(k) before obtaining a distribution, notes the IRS. Hardship claims generally require the account holder to demonstrate the payments are necessary to prevent their own homelessness, pay for college tuition, pay for medical care expenses or repair their home. Income tax and a 10% penalty from the IRS apply to these hardship distributions, states Scott Holsopple for U.S. News & World Report.Learn more about Financial Planning