55 Rollover from 401k to Self-directed IRA

[Arnie]

Following is from http://www.early-retirement.org/forums/f26/one-way-bungi-jumping-55373.html - I did not want to hijack that "Hi, I am" thread.

Actually, you can. If you separate from your employer (for any reason), you can 'roll-over' your 401k into a self-directed IRA (see Vanguard for details--they do answer the phone), and after the age of 55, you can access your money without penalty (still gotta pay taxes, but no extra 10% hit). You can take out as much or as little as you want until you turn 72 (IIRC), at which point you must take out the Minimum Required Distribution as determined by the IRS in a table somewhere. The MRD by the table is 1/your expected lifespan, recalculated each year.

Ed, can you point me to any discussion of this besides calling Vanguard? I knew I could access my 401k starting in the year I turned 55 if my employment was severed. However, I figured I would have to keep it with my employer at least until I was 59 1/2 as opposed to moving to an IRA with Vanguard if I wanted to avoid the 10% penalty. I'd like to learn more about this.

Also, I know you said "IIRC", but is the RMD due at 72 as opposed 70.5?

 

[kyounge1956]

Hi Arnie,
probably the best place to ask is your 401k plan custodian. I think you are correct that you have to leave your money in the employer's plan to take penalty-free withdrawals after separation at age 55 or older. However, if you do roll your 401k money into an IRA, you have the option of taking "substantially equal periodic payments", AKA 72(t) distributions, which are not subject to the early withdrawal penalty.

 

[Ed_The_Gypsy]

Hi, Arnie,

Sorry. I didn't even notice it was a "Hi, I am..." thread.

No, you CAN transfer custody of your 401K to Vanguard or any other qualified custodian after you terminate.

You may well find that your company's custodian was a brokerage or an insurance company with high fees and poor customer service (for you).

BUT YOU MAY NOT WANT TO DO THIS RIGHT AWAY. kyounge1956 above caught my mistake.

At the Vanguard web site you can download instructions for doing just that. You download a form, fill in the info, sign (sometimes custodians want the signature verified; your full-service bank manager can do this for you), mail to (for example) Vanguard, and they will do all the transfer of custody for you and dodge the 10% penalty. E-Z.

They even have an easy-to-find page on the subject, here: https://personal.vanguard.com/us/whatweoffer/rollover/overview

However, I gave you some bad information. You are right. The age at which the MRD begins is 70.5
https://personal.vanguard.com/us/help/FAQRetirementRMDContent.jsp

AND The penalty-free withdrawal of any amount after age 55 and having left the company is ONLY available from your company plan, NOT from an IRA.
The pros and cons of an IRA rollover | Vanguard Blog

I had looked into this long ago and was the reason I had left my $$ with my employers--but I didn't need it, then I forgot the details. (A good reason to verify anything someone tells you.) My apologies for misleading you.

 

[Arnie]

Thanks guys for reconfirming what I thought to be true from my own research. Just wanted to make sure I had not missed something. In my case I believe I have decent enough funds and fees to leave my 401k with my employer. I might move after 59.5 just to consolidate but do not want to go the 72(t) route if not needed.

 

[Midpack]

Hmmmm...looks like I learned something (happens all the time).

I was planning to roll my 401k over into an existing VG IRA at age 57. I thought I could access those funds if needed right away (since I'm more than 55) without the 10% penalty. I will not need those funds before age 59½, but I gather the 10% penalty at age 55 is only if I leave the $ in my 401k even though I'm no longer employed.

I'll have to think about that a little more before I act. Thanks...

 

[Ed_The_Gypsy]

I was planning to roll my 401k over into an existing VG IRA at age 57. I thought I could access those funds if needed right away (since I'm more than 55) without the 10% penalty. I will not need those funds before age 59½, but I gather the 10% penalty at age 55 is only if I leave the $ in my 401k even though I'm no longer employed.

Midpack, that isn't quite right.

If you want unlimited access to your funds without the 10% penalty, leave them in the 401k at least until you turn 59.5. Then you can roll over the 401k into an IRA--if you want to.

Arnie, between 59.5 and 70.5, you can take anything you want out of your IRA. It is only before 59.5 (IF you want to access funds early) and after 70.5 that you will be required to use the 72T withdrawal scheme (but only for an IRA). AFAIK, you can't use the 72T scheme or early withdrawal of your 401k funds, which is why the gummint gives you access without limit or penalty if separated from the company and over 55.

I rolled my 401ks into a single Vanguard IRA when I turned 60 (I did not like the 401k custodians). I don't know anything else about 401ks as don't use them anymore.

 

[Arnie]

Right. I will use the over 55 rule to access penalty free from my 401k. If I thought the 401k was fund-poor, or fee-high, I might consider rolling over and using 72(t), but I don't so I won't. Hope that is clear.

 

[Alan]

This year I rolled my 401k to a VG IRA at age 56. I don't need to access it before 59.5, and have started to convert it to a Roth IRA. I plan on converting a little each year, so as to reduce the RMD's at 70.5. I confirm that there is no 10% penalty in rolling it over, just make sure it goes direct from custodian to custodian.

 

[Dimsumkid]

It is only before 59.5 (IF you want to access funds early) and after 70.5 that you will be required to use the 72T withdrawal scheme (but only for an IRA).

Ed,
I think you're confusing Rule 72T after age 70.5 here with Required Minimum Distribution (RMD). Rule 72T only applies to withdrawals earlier than 59.5.

 

[Ed_The_Gypsy]

Hi, Dimsum,

You are right. My bad. However, the table that defines the annual distribution is the same, is it not?

 

[xyz]

My question is along a similar line. I have a cash balance plan(not a 401k) at work and planning to take a lump sum at my retirement age of 55. Here is what I am thinking of doing.. take the lump sum and move it into an IRA so I don't take a full tax hit in one year then take periodic payments from the IRA thru age 59.5. I assume I would have to follow the 72T route on this correct? Does this make sense?

 

[DFA]

have started to convert it to a Roth IRA. I plan on converting a little each year, so as to reduce the RMD's at 70.5.

Am I getting this, if I work it to convert my 401(k)s and IRAs to Roth IRAs I don't have to do the RMD?

 

[travelover]

Am I getting this, if I work it to convert my 401(k)s and IRAs to Roth IRAs I don't have to do the RMD?

No RMDs on a Roth to the original owner. I believe that inherited Roths has RMDs for nonspouses.

 

[Alan]

Am I getting this, if I work it to convert my 401(k)s and IRAs to Roth IRAs I don't have to do the RMD?

Correct.

No RMDs on a Roth to the original owner. I believe that inherited Roths has RMDs for nonspouses.

Also correct. If a non-spouse inherits an IRA, including a Roth, they must begin RMD's the year after they receive it no matter how old they are, and there is no 10% penalty if they are under 59.5.

 

[allen76]

55 roll over 401k to IRA

Just a caution on using this technique. Make sure you are aware of your 401k administrators policy on withdrawals. I used this technique and left PV of 4 years living expense in my 401k and rolled the balance to VG IRA. The 401k admin restricted my withdrawals to twice per year. No big deal, but it is critical to know the rules around withdrawals and participation in the plan after separating from service.