I currently have 40000 in my 401K. I am 59.5 years old. If I take a lump distribution on this in January of 2013, and retire about how much federal tax will I have to pay on it?

Your income tax bracket depends on your adjusted gross income, so it's impossible to answer this accurately without knowing how much other income you have, less deductions. If you're not sure what your tax bracket will be for 2013 I recommend that you have the plan administrator withhold 20% for federal taxes ($8000) - that should cover it unless you know that you have significamt other income. But if this distribution will be your only income for the year you will most likely owe only a small amount of tax, or perhaps none at all. Don't forget state income taxes - if you live in a state that taxes 401(k) distributions you should plan on filing an estimated income tax form to cover the taxes due the state. Rough numbers: if your state has a 5% tax rate then that would be 5% of $40K = $2,000 due.