What does the term "distribution" refer to in retirement plans?

The term "distribution" in the context of retirement plans specifically refers to when an individual receives money from their retirement account. This can occur under various circumstances, such as reaching retirement age, rolling over to another account, or withdrawing funds. Distributions can be received in different forms, including lump-sum payments or periodic withdrawals.

Understanding this term is crucial, as distributions can have significant tax implications, potentially affecting an individual’s taxable income for the year they receive the funds. Additionally, the rules around distributions can differ based on the type of retirement account, such as a 401(k) or an IRA, including penalties for early withdrawal in some cases.

The other contexts provided by the other choices do not accurately reflect the specific meaning of "distribution" in retirement plans. Recognizing "distribution" as receiving money helps clarify discussions about retirement planning, tax liabilities, and financial strategies.