How To Handle 401k Distributions | ETF Trends

Note: This article is courtesy of

By Kimberly J. Howard

You’ve been contributing to a 401k plan for years. And, your employer was good enough to add some matching funds. But now that you’re getting ready to retire it’s time to start thinking about the distribution of that 401k plan. So what should you do with your 401k once you retire?

There are two sets of rules governing your 401k plan. Both the IRS and your plan administrator have a say in what you can do with the account. The IRS controls how your choices affect your taxes. The plan administrator has a say in how you invest and how you can withdraw assets.

If you’re 59 1/2 or older you can withdraw funds from your 401k without tax penalty. Under some circumstances you can withdraw a lump sum penalty free if you’re over 55. Note, you’re avoiding penalties, not ordinary income taxes. The penalty for early withdrawal is 10% of the amount withdrawn.