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401k Withdrawal Catch 22
Old 08-11-2012, 06:38 AM   #1
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401k Withdrawal Catch 22

I have run into an unforeseen problem while planning my 401k retirement withdrawals. I planned to retire at 57 and start taking partial withdrawals each year from the 401k.The plan allows withdrawals upon retirement at age 55 without the 10% penalty.
I called Fidelity to confirm this since the plans summary discription was a little vague on the withdrawal side. I was told that I could take a withdrawal but it is the entire amount or take out an annuity. I guess I could roll it into an IRA and take 72t dstributions, but really don't want the hassle. Plus the plan offers institutional shares of mutual funds with miniscule expense ratios.
Does anyone have experience with this issue?
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Old 08-11-2012, 07:23 AM   #2
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The law allows the withdrawals after retirement during or after the year you turn age 55 but your 401k plan can limit the options. In my case the options were to take all or to set up a systematic withdrawal plan for either a set number of years or based on life expectancy. The alternative to 401k withdrawals is to rollover to an IRA and setup 72t withdrawals. One advantage of this is that you have greater choice of investment options for IRA vs you 401k plan and you can choose lower cost investments. YMMV
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Old 08-11-2012, 07:47 AM   #3
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Thanks. I'm trying to figure out how to get enough with a one time partial w/d and roll the rest over. Depending on when I retire I might be ale to stay in a lower tax bracket. This with taxable savings might give me enough to bridge the gap to 59 1/2. I really don't want to go the 72t route this close to 59 1/2.
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Old 08-11-2012, 09:39 AM   #4
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I think that conforms to the IRS rules, lump sum or periodic payments. IRS rules here...

401(k) Resource Guide - Plan Sponsors - General Distribution Rules

Maybe check your plan for hardship withdrawal rules.

A ROTH IRA conversion might get around the 72t
Kiplinger.com

Can I Roll My 401k To A Roth IRA? 401k Calculator with 401K Limits For 2012
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Old 08-11-2012, 09:55 AM   #5
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I think the IRS rules you list spell it out. I appreacite the link. I now see I have an after tax amount from a prior plan included which I can take out separately. This with a step up in savings might be enough to bridge the gap. In either case it looks like I'll leave the bulk of the 401k alone until age 59 1/2.
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Old 08-11-2012, 10:24 AM   #6
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Originally Posted by foxfirev5 View Post
I think the IRS rules you list spell it out. I appreacite the link. I now see I have an after tax amount from a prior plan included which I can take out separately.
That's what I did to gap the period of when I retired until I turned 59.5, not from a prior company but at my current employer, after many years of having payroll deductions (which I really never saw) through FIDO.

Where others thought I was a bit crazy to contribute "above the line" worked out well (heck, they were still w*rking well after I retired )...
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Old 08-11-2012, 10:25 AM   #7
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Originally Posted by foxfirev5 View Post
I called Fidelity to confirm this since the plans summary discription was a little vague on the withdrawal side. I was told that I could take a withdrawal but it is the entire amount or take out an annuity. I guess I could roll it into an IRA and take 72t dstributions, but really don't want the hassle. Plus the plan offers institutional shares of mutual funds with miniscule expense ratios.
Does anyone have experience with this issue?
When DH retired he left his 401(k) at Fidelity and when he wanted to take out some money earlier this year was told the same thing. In his case, he just ended up rolling it over to an IRA (he is over 59 1/2 so didn't have to worry about 72t distributions).
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Old 08-11-2012, 11:35 AM   #8
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Thanks to all for the replys. It looks like I got good info from Fidelity I just need to work around the particulars. Like many retirement plans there's tons of info about saving and investing but not much about drawing it down.
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Old 08-11-2012, 12:17 PM   #9
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Like many retirement plans there's tons of info about saving and investing but not much about drawing it down.
Heck, post your concerns to the "old pharts" (me included) on this forum that are already retired and drawing down our respective assets.

Our different ways may not suit your requriements, but hopefully you can get some ideas from us folks that "are there", rather than those that are just thinking about options, without living in the actual situation...
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Old 08-11-2012, 12:58 PM   #10
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how does this help? funds needed for tax on conversion that OP doesn't have? 5 yr clock before conversions can be withdrawn w/o penalty? sounds like a bit of from the frying pan into the fire?
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Old 08-13-2012, 10:33 AM   #11
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how does this help? funds needed for tax on conversion that OP doesn't have? 5 yr clock before conversions can be withdrawn w/o penalty? sounds like a bit of from the frying pan into the fire?
OP just said he didn't want hassle of dealing with 72t. You can withdraw from ROTH without penalty but there is tax on conversion. There will taxes/penalties for most any type of withdrawal before 59.5
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Old 08-13-2012, 02:09 PM   #12
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You can withdraw from ROTH without penalty but there is tax on conversion.
part of a nice table by KAWill from the fairmark.com forum
There are penalties for withdrawals of conversion and earnings before the 5 yr clock on conversions expires if you are less than 59.5 y.o.

Re: Roth IRA Rules - Table Approach

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes
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