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Benefits Beginner: Introduction to 401(k) Plans

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401(k) Plan Distribution Requirements

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401(k) Plan Distribution Requirements

If you retire after age 59½, you can begin taking distributions from your 401(k) without owing a 10% early withdrawal penalty. Depending on your employer’s rules, you can take a lump-sum withdrawal or regular distributions in the form of an annuity. Changes to federal law in 2019 now provide more incentive for plan sponsors to offer annuities. All distributions are subject to your ordinary income tax rate.

You must begin taking required minimum distributions beginning on April 1 the year you turn 73.

Know your plan in and out

As with any account into which you put your money, your company’s plan rules may have restrictions. Be sure to study your plan carefully and ask questions.

Avoiding the 10% penalty

Penalty-free distributions from a 401(k) plan are allowed only for the following events:

  • Retirement (age 59½ for most plans)
  • Termination of employment—with rollover into another plan
  • Certain hardships (such as medical expenses or college tuition). Significant restrictions and/or penalties may be imposed on hardship withdrawals prior to age 59½.
  • Distributions or withdrawals made to an alternate payee as part of a qualified domestic relations order, such as under a divorce settlement.
  • Death, disability, or terminal illness
  • Distributions made as part of a series of substantially equal annual payments made over your life expectancy.
  • Active military reserve duty
  • An IRS levy on the account
  • A qualified federally declared disaster
  • Emergency expenses
  • Domestic abuse

These exceptions come with rules and limitations. First-time home purchase is not one of these cases as it is with individual retirement accounts.

The QLAC option

You can also use a qualified longevity annuity contract, or QLAC. This is a deferred annuity that is funded with money from your 401(k). It lets you defer distributions until a future date of your choosing, up to the day you turn 85, and pays you for the rest of your life. QLACs have contribution limits of their own; for 2025, that limit is $210,000.

Distribution rules for 401(k) plans are complex, and professional assistance may be needed.