How to Collect 401(k) Retirement Funds

After you retire, you have several options for removing money from your 401(k) retirement fund. Because a 401(k) is tax-deferred, you will have to pay income tax on any amount you decide to withdraw.

Step 1

Contact your 401(k) plan's administrator and ask for a 401(k) distribution request form.

Step 2

Read any disclosures that your plan's administrator sends to you about the 401(k). These disclosures may include tax penalties, rules regarding early withdrawals and any other special information related to your particular 401(k). In most cases, being older than 59 1/2 years is the only requirement for withdrawing retirement funds from a 401(k) penalty free.

Step 3

Fill out the 401(k) distribution request form, which requires your account information and Social Security number, along with information on where you want the funds sent.

Step 4

Choose between receiving the money as a lump sum, in periodic payments or by rolling the funds into an IRA account.

Step 5

Choose the periodic-payments option if you prefer to have periodic payments to help with regular retirement expenses. The amount of the withdrawals from your 401(k) are calculated according to an IRS life expectancy table. Each payment will be taxed as ordinary income.

Step 6

Choose to receive the full amount of your 401(k) balance if you need a large sum of money right away. The entire distribution will be taxed as ordinary income.

Step 7

Choose the rollover option if you don't need any money right away. Usually, you will be taking funds from your 401(k) plan and transferring them to an Individual Retirement Account (IRA). This money will not be taxed when transferred.

Step 8

List your qualifications for an early distribution on the 401(k) distribution form if you are withdrawing money before the age of 59 1/2, which the IRS mandates. The IRS lists qualifications on its website -- such as financial hardship.

Step 9

Report the amount you withdrew on IRS Form 1040 or 1040A if you took a lump-sum or periodic-payment option. This amount will be listed as an annuity distribution or taxable pension and will be taxed at ordinary income rates.

Step 10

Report the amount you withdrew on IRS Form 1099-R if you rolled over the money into an IRA.

Items you will need

  • 401(k) distribution request form
  • IRS Form 1040 or 1040A or 1099-R

Tip

  • 401(k) withdrawals can sometimes come with unexpected rules or penalties. Consult a financial adviser for more information on the options available to you.
  • You are required to make 401(k) withdrawals once you reach age 70 1/2 or when you retire, whichever occurs later.

Warning

  • If you are withdrawing before the age of 59 1/2, your withdrawal will be taxed an additional 10 percent unless you meet certain IRS exceptions.

Photo Credits

  • Jupiterimages/BananaStock/Getty Images

About the Author

With features published by media such as Business Week and Fox News, Stephanie Dube Dwilson is an accomplished writer with a law degree and a master's in science and technology journalism. She has written for law firms, public relations and marketing agencies, science and technology websites, and business magazines.

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