The simplest answer to this question is after you are no longer employed and reach the age of 59 1/2. Under this circumstance any money that you withdraw will be taxed, but will not face the 10% penalty for an early withdrawal.
There are numerous considerations when evaluating this type of thing that would require some additional info. For example, is the money still in the 401(k)? Have you rolled it over to an IRA?
This is where advisors can be particularly helpful as they can help you establish a game plan that is uniquely tailored to your situation.
Hi, the when is at retirement. For the majority of 401k plans that is when you reach 59 1/2 as you are exempt from the 10% penalty but still subject to taxes at your tax bracket but ideally you want to wait until you reach your real retirement, that is when you stop working altogether or you have reduced your hours as some have to work through retirement if their health allows them.
The how is by rolling your 401k to an IRA. A 401k is a good accumulation vehicle but it fails as a distribution vehicle. You will have greater flexibility for distributions out of your IRA.
Best of luck and continue saving!
Carlos and Michael have laid out the fundamental answers to your question. The 401k should be transferred to an IRA upon your retirement. You can then begin to withdraw funds at any point after age 59.5 without penalty.
Distributions from your IRA will be taxed as ordinary income so you should be aware of how much you take out for tax purposes. You will also want to be aware of how your distributions will affect your Social Security benefits.
When do you plan on retiring?
Hi All great answers. I would add that if you are separated from service and unemployed and 55 or older you can avoid the 10% penalty.