How Old Do I Have to Be to Take From My 401(k)?

How Old Do I Have to Be to Take From My 401(k)?
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A 401k is a retirement plan that allows employees to develop the financial resources to support themselves when they retire. The plan is set up for regular contributions while you are working, then when you reach retirement age you can begin to access the money. Contributions to the plan are not taxed going in, but taxes are paid on the money at the time it is withdrawn. Typically you will be in a lower tax bracket after retirement, resulting in a net tax savings. Special circumstances may allow you to take money from the 401k at other times.

Elective Distributions

You can elect to take money from your 401k in three circumstances. The first of these is upon termination of the plan by your employer, without the implementation of another plan in its place. The second is when you are no longer employed, usually either if you die, when the funds are paid to your beneficiaries, or if you become disabled. The third is when you reach the age of 59 ½.

Required Distributions

You are required to begin receiving money from your 401k plan as of April 1 in the year after you turn 70 ½ or the year after you retire. This requirement applies to all qualified plans that you participate in, so if you have funds in three 401k plans at the time you turn 70 ½ or retire, you must start taking money from all three, beginning at the same time.

Hardship Distributions

You may opt to take a hardship distribution of some of the funds in your plan, provided you meet certain requirements and provided your plan allows for such distribution. According to the IRS, you may take money to satisfy “an immediate and heavy financial need.” The money must be only what is “necessary to satisfy that financial need.” Such things as the purchase of a residence, college tuition, prevention of eviction and significant medical bills all qualify as hardships. Age is not a consideration for a hardship distribution.

Distribution Methods

The amount of money distributed from a 401k plan depends on various factors. In a typical setup, you will begin to receive distributions at a specific age, and then you will receive the funds as annual payments over the course of your lifetime, or until the funds run out. Some plans specify that your funds are to be distributed as a single lump sum payment at the time you become eligible for payments. In the case of a hardship distribution, only your contributions are available for distribution, as a single payment. Your employer’s matching funds may not be used in such cases.