As far as I know, that was the rule for tax deferred accounts right from the beginning. Note that these are tax DEFERRED, not tax free accounts. The idea was to defer taxes from your high income years to your retirement years when you are most likely to have a smaller income and therefore a lower tax rate. The rules require withdrawing a certain percentage based on life expectancy. I turned 70-1/2 this year and have known from the start that I'd be required to pull out some money. I'll pay income tax on it and put the remainder in some other investment. At the end of it all, though, 401Ks have been a terrible investment. I would have been better off paying the taxes and putting the money in CDs.