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Withdrawal from 401k before 59 Ĺ
Old 06-16-2016, 11:01 AM   #1
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Withdrawal from 401k before 59 Ĺ

Hello from Tennessee. Iíll be 58 in September and would like to retire at that time. I just spoke with a financial planner who said I can make withdrawals from my company retirement plan (401k), without penalty, providing the following is met:

ē the 401k is a company retirement plan
ē Iím separated from the company
ē Iím over 55 when separated from the company

Iíll meet this criteria, but didnít realize this was possible without being penalized. I initially was seeking his advice/guidance using the 72t plan and he explained I wonít need to go that route. Can anyone tell me if his advice is correct? Thanks in advance.
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Old 06-16-2016, 11:22 AM   #2
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Welcome,

I do wonder from your post if you are prepared financially for retirement.
Don't you have 1.5 years worth of savings in a regular account ?
Have you done the firecalc to see if you truly have enough saved to retire ?
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Old 06-16-2016, 11:30 AM   #3
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Legally, 401(k) plans can have this option, but not all plans do. You will need to get the plan documents and see if it allows for withdrawals at age 55.
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Old 06-16-2016, 11:31 AM   #4
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I believe there is an additional criteria which requires a regular, steady and repeated withdrawal. You might even have to fill out some form saying such.

I could be wrong but I'd check that out. If I'm right, I'd start by getting another FA
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Old 06-16-2016, 11:38 AM   #5
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Yes, he is correct:

Here is an excerpt from here https://www.irs.gov/taxtopics/tc558.html:

"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55"
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Old 06-16-2016, 11:43 AM   #6
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The substantially equal periodic payments is related to 72T withdrawal. Your planner is correct. Just google Rule of 55 401k. My plan is silent on the language (Vanguard) and the HR reps indicate they follow IRS regulatory rules.
I did speak to an attorney who indicated regardless of what Plan Rules may dictate, they cannot override and be at odds WITH Federal/IRS law, which makes sense.
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Old 06-16-2016, 11:48 AM   #7
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Check out your plans documents or give HR a call. My plan allowed it and I have used it since I retired at 56. No restriction on withdrawals with my plan except the withdrawal must be at least $500. I have made two withdrawals so far and you will get a 1099R at the end of the year.

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Old 06-16-2016, 11:50 AM   #8
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Originally Posted by RetireAge50 View Post
Yes, he is correct:

Here is an excerpt from here https://www.irs.gov/taxtopics/tc558.html:

"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55"
the plan document has to allow it; some don't
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Old 06-16-2016, 11:55 AM   #9
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OK per tax code, which most plans allow. My 401k plan is managed by Fidelity, allows this withdrawal, but is limited to two draws per calendar year FYI.
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Old 06-16-2016, 11:59 AM   #10
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OK per tax code, which most plans allow.
Mine doesn't
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Old 06-16-2016, 11:59 AM   #11
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Originally Posted by skibum View Post
OK per tax code, which most plans allow. My 401k plan is managed by Fidelity, allows this withdrawel, but is limited to two draws per calendar year FYI.
Hmm, mine is managed by Fidelity also and as far as I know there was no limit on the number of withdrawals per year. I will have to check that for sure, it would suck if it was time to tap it again and I couldn't.

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Old 06-16-2016, 12:00 PM   #12
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Really need to check with your plan administrator as some plans have limitations as to how often and how much you can withdraw. I've heard of some that it can be as bad as you must withdraw all or none.
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Old 06-16-2016, 12:13 PM   #13
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Really need to check with your plan administrator as some plans have limitations as to how often and how much you can withdraw. I've heard of some that it can be as bad as you must withdraw all or none.
+1

Some plans make it impossible to do. That said, yes you MAY be able to do it, I've taken a couple of small withdrawals and no penalty.

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Old 06-16-2016, 12:20 PM   #14
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fyi, They will automatically take out 20% for federal withholding on any
distributions from 401k.
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Old 06-16-2016, 12:23 PM   #15
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fyi, They will automatically take out 20% for federal withholding on any
distributions from 401k.
not rollovers
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Old 06-16-2016, 12:30 PM   #16
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Quote:
Originally Posted by JBeez View Post
Hello from Tennessee. Iíll be 58 in September and would like to retire at that time. I just spoke with a financial planner who said I can make withdrawals from my company retirement plan (401k), without penalty, providing the following is met:

ē the 401k is a company retirement plan
ē Iím separated from the company
ē Iím over 55 when separated from the company

Iíll meet this criteria, but didnít realize this was possible without being penalized. I initially was seeking his advice/guidance using the 72t plan and he explained I wonít need to go that route. Can anyone tell me if his advice is correct? Thanks in advance.
I'm in the same scenario but am 55. I'm being told the same thing and there is an IRS doc that supports it (IRS pub 575). MUCH easier than the rule of 72t. Cheers.
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Old 06-16-2016, 01:35 PM   #17
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Mine doesn't
I believe the only requirement that needs to be in the plan documents is the ability to take a withdrawal given your age and status.

I don't believe there is any requirement to cite age 55 and penalty-free status in the plan documents.

You will determine whether or not the distribution qualifies for the penalty-free withdrawal when you file form 5329 with your tax return. Line 2 Exception #01 is where this is implemented

Quote:
Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from service when the separation from service occurs in or after the year you reach age 55 (age 50 for qualified public safety employees).
We had quite a discussion almost a year ago here regarding this topic.

-gauss
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Old 06-16-2016, 01:52 PM   #18
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not rollovers
If you rollover then you have to wait until 59 1/2 without penalty.
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Old 06-16-2016, 01:53 PM   #19
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If you rollover then you have to wait until 59 1/2 without penalty.
I rolled it into my current employer 401k
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Old 06-16-2016, 01:54 PM   #20
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We had quite a discussion almost a year ago here regarding this topic.

-gauss
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