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Old 06-23-2016, 11:48 AM   #21
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The best part of this research is I discovered you can take withdrawals "the same calendar year that you turn 55", and DW was born in December. So she's looking forward to separating from the company when she's 54 and 1 month! Heck, she always has a ton of vacation on the books, maybe we can make her last day in the office before Christmas that year!
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Old 06-23-2016, 12:16 PM   #22
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Yes - as long as your employer/qualified plan will give you a distribution (as determined by the written rules of the plan found in the Summary Plan Document (SPD) ) it will be processed (by you) as tax free on your tax return if you meet the requirements.

The employer is not in the business of determining/accessing early-withdrawal penalties. This is between you and the IRS>

Box 7 on 1099-R will have a code 1 or code 2 if you are under age 59 1/2 for early withdrawal (no known exception '1') or (exception applies '2').

If they improperly give you a code '1' on the 1099-R box 7 then it should be an easy fix via form 5329 to correct this (no need to press for a "corrected" 1099R).

I would retain a written letter from my employer confirming the date of separation which could be used to document to the IRS (along with your age at the time) that you qualify for the penalty-free treatment.

-gauss
Thanks for the clarification. If I had a nickel for each time I heard "you need to wait until you are 59.5" I would have ER'd 10 yrs ago! Ha.
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Old 06-23-2016, 02:23 PM   #23
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Thanks for the clarification. If I had a nickel for each time I heard "you need to wait until you are 59.5" I would have ER'd 10 yrs ago! Ha.
You will need to verify in your SPD/plan documents that your plan allows withdrawals before age 59 1/2 and if so under what conditions (ie single lump sum only, etc). -gauss
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Old 06-23-2016, 03:05 PM   #24
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I've just finished reading my SPD for the first time. It's silent on the age 55 question for distributions. It simply says you can make distributions anytime before age 65. After 65 you must begin distributions. That seems like a strange statement.


The other strange item is that the only form of distribution is a lump sum payment. So apparently when I withdrawal from my 401K, I have to withdrawal all of it. There is no other way.


Almost wonder if I'm interpreting this correctly.


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Old 06-23-2016, 03:39 PM   #25
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When I retired at 57 the company plan specified one withdraw at 55 prior to rollover. I calculated how much I would need with some cushion to make it to 59 1/2. This was a one time shot without penalty. Could not take more than the years used for SS life expectancy per year\401K balance. Read her company defined benefits plan.
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Old 06-23-2016, 04:59 PM   #26
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I'm in the same boat. I will try to bridge the gap for 7 1/2 years. DW turns 55 this year. I plan on taxable account for two years, hers for three and then idk. 72t too restrictive and not enough to be able to withdraw based on percentages and 5 yr lock in. Might have to suck up10% penalty and use Roth.


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Old 06-23-2016, 05:10 PM   #27
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The best part of this research is I discovered you can take withdrawals "the same calendar year that you turn 55", and DW was born in December. So she's looking forward to separating from the company when she's 54 and 1 month!
I believe if separation is prior to age 55, a penalty will apply to pre-59.5 withdrawals.
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Old 06-23-2016, 05:18 PM   #28
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I believe if separation is prior to age 55, a penalty will apply to pre-59.5 withdrawals.

His DW will turn 55 in the calendar year so they can withdraw penalty free from DW 401K.


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Old 06-23-2016, 05:24 PM   #29
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His DW will turn 55 in the calendar year so they can withdraw penalty free from DW 401K.
Yes, Laurence is correct (my bold):


Quote:
...the 10% additional tax for early distributions does not apply to any distributions that are “made to an employee after separation from service after attainment of age 55.”

In reality, however, the rule is slightly more lenient than that. IRS Notice 87-13* states that “a distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.”
The Age 55 Rule for 401(k) Accounts — Oblivious Investor
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Old 06-24-2016, 12:29 AM   #30
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I'm in the same boat. I will try to bridge the gap for 7 1/2 years. DW turns 55 this year. I plan on taxable account for two years, hers for three and then idk. 72t too restrictive and not enough to be able to withdraw based on percentages and 5 yr lock in. Might have to suck up10% penalty and use Roth.
.....
if DW turns 55, can she tap a 401K ?

How about using the 72t plus the taxable account withdrawls at the same time.

Or radical idea, borrow against the house to bridge over the last few years, then you can take out money from IRA without penalty.
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Old 06-24-2016, 01:27 AM   #31
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if DW turns 55, can she tap a 401K ?

How about using the 72t plus the taxable account withdrawls at the same time.

Or radical idea, borrow against the house to bridge over the last few years, then you can take out money from IRA without penalty.

Yes, she can. I like your idea. I will have to explore that option. Thanks.


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