Plan owners may initiate withdrawals from 401(k) plans without penalty when they become 59 1/2 years old, reports the IRS. Early distributions incur a penalty tax unless they qualify as exceptions. A plan owner must begin required minimum distributions by age 70 1/2 or face penalties.Continue Reading
Generally, 401(k) plan owners age 59 1/2 or over may receive 401(k) withdrawals as lump sum distributions or installment payments and pay only standard income tax on the distributions, according to the IRS. Withdrawals made after an employee retires at age 55 or over qualify as an exception to the 10 percent early withdrawal penalty tax. Other exceptions include withdrawals made after a plan owner becomes completely and permanently disabled, is called from reserve to active military duty for 180 days or more, or incurs medical expenses totaling 10 percent or more of adjusted gross income. The IRS does not impose the penalty tax on withdrawals made to satisfy an IRS levy or on a series of substantially equal payments.
A 401(k) plan owner must initiate required minimum distributions by April of the year after he turns 70 1/2 or face a tax penalty of 50 percent of the amount that should have been distributed, states the IRS. He must take annual distributions for every subsequent year by December 31. Although a plan owner may withdraw more than the minimum amount, the excess withdrawal does not count toward the following year's required minimum distribution.Learn more about Financial Planning