How Is 401K Paid Out? 
401 -LRB- k -RRB- plans can have a variety of payout options . The option most commonly used is to roll the money into an IRA . Then the money maintains its tax character and is easiest to handle . The money can remain in the account without any withdrawals until you reach the age of mandatory distributions . Then , by law you must start taking out a specific percentage of the account every year until it is depleted . All distributions from a 401 -LRB- k -RRB- or an IRA are taxed as ordinary income . There is an exception if the 401 -LRB- k -RRB- was invested in company stock . 