Required Withdrawals

	401(k) Fact
	Every year, approximately 1,000 employees eligible to collect pensions don't. According to one count, forgotten accounts total over $27 million.

Once you turn 70½, you must begin withdrawals from your 401(k) unless you're still working. These required withdrawals are designed to ensure that you use the money in your account for the purpose it was intended: to provide retirement income.

You may not be required to put money into a 401(k) plan. In fact, only a few employers have mandatory plans. But if you do contribute, you must eventually take minimum required distributions (MRDs) from your plan if you haven’t made arrangements for moving the accumulated assets out of your account.

The reason the government requires withdrawals is that these tax-deferred savings plans were established to provide you with retirement income, not as a way for you to accumulate an estate to leave to your heirs—though if you die before you have withdrawn your assets you can pass them on to a beneficiary or beneficiaries you name.

Of course, you’re free to begin withdrawing sooner than the law requires—which is when you reach 70½—if you retire or leave your job. You can also take more than the required minimum each year if your plan offers a flexible withdrawal arrangement. But if you take less for any reason, or if the required annual withdrawal isn’t made before the end of the year, you face a 50% federal penalty on the amount you should have taken but didn’t.

A Word to the Wise The money you take from your 401(k) is officially described as a distribution, though in everyday usage, it’s usually called a withdrawal.