I will be 59 1/2 on January 10, 2011. When can I take a distribution with no penalty? And how much of the balance can I withdraw?

Two possible answers:

1. If you are talking about a distribution form a 401(k) plan, then you can take a distribution starting January 1, 2011 without penalty (you can start withdrawing any time in the calendar year you turn 59-1/2). This assumes that you are no longer employed at the company where your 401(k) plan is located - if you are still employed your company plan may have rules that prevent active employees from making withdrawals.

You may be able to start wthdrawing even sooner from your 401(k) without penalty IF you meet one of the exceptions:
- If you were "separated from service" from your place of empoloyment where the 401(k) plan is located in or after the year you turned 55.
- If you start a series of esssentially equal periodic withdrawals based on your life expectancy - ths is known as a 72(t) withdrawal.
- If the money is used for one of the IRS's "hardship" purposes - such as medical expenses that exceed 7.5% of your adjusted gross income, or if you are disabled, or if you are a reservist on active duty.

2. If you are talking about a withdrawal from an IRA, the rules are a little different. There is no "age 55 and separated from service" excepton. However, the list of exceptions is a little bigger - including cost for medical insurance if unemployed, or cost to buy or repair a first home, or costs of higher education for yourself or your spouse. There are loimits on these exceptions - if you need more details please post back.

You can withdraw as much of your account value as you like. However don't forget that withdrawals are counted as ordinary income, and so even though they will automatically withhold 20% for federal income taxes this may not be enough - if you get pushed into a higher tax bracket. Also, don't forget that you may also owe state/local income tax on it as well. Be sure to keep enough in reserve to cover these expenses.