What are mandatory distributions in a 401(k) plan?

Mandatory distributions in a 401(k) plan refer to the withdrawals that are required to be taken at a specific age, typically starting at age 72. This requirement is in place to ensure that individuals begin to access their retirement funds and pay taxes on them, rather than allowing funds to grow indefinitely in a tax-deferred environment. The IRS mandates these distributions to prevent tax avoidance through indefinite tax deferral on retirement accounts.

Participants must take these distributions even if they are still working, although there are exceptions for certain circumstances. This requirement is designed to ensure that individuals utilize their retirement savings during their retirement years.

The other options do not correctly describe mandatory distributions. Voluntary withdrawals are initiated by the participant at any time, not mandated by law; distributions after retirement may also be voluntary; and contributions are the money put into the plan, not distributions.