How much do I need to withdraw from my 401(k)?

Hal emailed: When withdrawal of funds begins, how much or what percentage must be withdrawn each year? What happens to money left in a 401(k) when a person dies?

 
Before you hit age 70 ½, there’s no required amount to be withdrawn. After 70 ½ (if you’re no longer working for the employer or if you are employed and are a 5% or greater owner of the company), you can use this IRS worksheet to help you calculate the required minimum distribution (it’s the same form as the one you’d use for IRAs). You’ll take the account’s balance at the end of the prior year and divide it by the figure from the table to calculate the amount you have to withdraw for the year, says Jim Blankenship, a CFP and estate planner.  You can withdraw more, but you’ll be penalized if you withdraw less than the minimum – a 50% tax on the amount not distributed, Blankenship says. The minimum withdrawal amount changes each year based on your age and the account’s balance at the end of the just-completed calendar year.

If there’s money left in your 401(k) after your passing, your beneficiaries will receive the account and must either continue your minimum distributions, or use their own age to determine minimum distributions. If you haven’t designated a beneficiary for your 401(k) yet, it’s pretty easy to fill out the form on the plan administrator’s site.