Owners of 401(k) accounts can make penalty-free withdrawals any time after age 59 1/2, although they must pay income taxes on the distributions unless they roll the money into other retirement accounts within 60 days. Most account owners must start taking minimum distributions by April 1 of the year after they turn 70 1/2, according to the Internal Revenue Service. Some accounts postpone the minimum distribution requirement for current employees, and the requirement begins once they retire.
Account owners can take 401(k) withdrawals as occasional lump-sum distributions or as scheduled installment payments, notes the IRS. When owners schedule direct transfers from a 401(k) plan to another retirement account, such as a traditional IRA, account administrators don’t withhold income taxes. However, when account owners take cash distributions, administrators must withhold 20 percent to cover possible taxes.
Once retired people take their first required minimum distributions after age 70 1/2, they have until Dec. 31 of each following year to take the remaining distributions. The IRS bases the distribution amount on the account balance and the owner’s life expectancy, explains Bankrate. Account owners who fail to take timely minimum distributions face a 50 percent tax on the tardy withdrawals in addition to regular income taxes.