A lump-sum distribution is just what it sounds like—you take a distribution of all the money in your 401(k) plan in one lump sum. You will qualify to take a lump-sum distribution if you meet the following requirements:
- The distribution is payable on account of death, attainment of age 59½, or separation from service.
- Your entire plan balance is paid out.
- The distribution is made all in one taxable year of the recipient.
You will have two choices if you go this route.
- You can roll over all or part of it into a traditional IRA or other retirement plan and defer paying income tax; or
- You can pay income tax on the money you keep.