Early 401k w/d after 55

[WestwardBound]

I’ve read the rules about early access with no penalty and just looking for more verification.

I’m 56 and retiring after 25+ years with the same company. All my 401k money is in the companies plan. I can leave it there and access periodically if I wish until I’m 70.

I understand I can w/d before 59.5 without penalty.

True? Has anyone done this?

Thanks.

[Sunset]

OP - You checked with the company about the 401K withdrawals being allowed ?

Not all 401K's allow it. Which is why it's important to actually confirm with your specific 401K.

[MRG]

Quote:

Originally Posted by Sunset OP - You checked with the company about the 401K withdrawals being allowed ? Not all 401K's allow it. Which is why it's important to actually confirm with your specific 401K.

+1

Yes, I have done it.

Check the Summary Plan Description for the rules on early withdrawal. It's generally around hardship withdrawals and early termination(55 and separated from service). Also some 401ks have limitations on partial withdrawals.

ETA: You can do a 72T if your plan doesn't allow for post 55 distributions.

[JoeWras]

Get a copy and read your SPD, Summary Plan Description.

The administrator is required to provide you access to it. Both of my 401ks are administered by Fidelity and the SPD is under a tab called "Plan Information."

The answer will be there, but might be obtuse. Note that the rules specify you must separate at age 55 or beyond while employed. Hence, only one of the two 401ks I have are eligible. For my previous megacorp, I have to wait until 59 1/2.

Here's what my latest megacorp plan says about this. It is in reverse language. Hard to parse, but the upshot is I can withdraw without penalty since I separated from them while at age 55.

Early Distributions
In addition to the income taxes just discussed, a 10 percent federal penalty tax on the taxable amount of any withdrawal or distribution from the Plan you receive before you reach age 59 ½ (plus any applicable state penalty tax), unless the distribution is:
- rolled over (if eligible) to an IRA or Eligible Employer Plan;
- made in connection with your separation from service at or after age 55;
- made after your disability or death;
- <A bunch more rules to allow it>

[Lawrencewendall]

It's called the "Rule of 55". Not all plans have it.

[Al18]

I retired a few months ago at age 56 and was able to withdraw from my 401K plan without penalty. 20% Federal Tax withholding in required per IRS rules - so plan accordingly. My plan was administered by Fidelity, and all questions about withdrawals were answered by Fidelity. It all went very smoothly and the only surprise was a $20 transaction charge.

[WestwardBound]

Quote:

Originally Posted by JoeWras Get a copy and read your SPD, Summary Plan Description. The administrator is required to provide you access to it. Both of my 401ks are administered by Fidelity and the SPD is under a tab called "Plan Information." The answer will be there, but might be obtuse. Note that the rules specify you must separate at age 55 or beyond while employed. Hence, only one of the two 401ks I have are eligible. For my previous megacorp, I have to wait until 59 1/2. Here's what my latest megacorp plan says about this. It is in reverse language. Hard to parse, but the upshot is I can withdraw without penalty since I separated from them while at age 55. Early Distributions In addition to the income taxes just discussed, a 10 percent federal penalty tax on the taxable amount of any withdrawal or distribution from the Plan you receive before you reach age 59 ½ (plus any applicable state penalty tax), unless the distribution is: - rolled over (if eligible) to an IRA or Eligible Employer Plan; - made in connection with your separation from service at or after age 55; - made after your disability or death; - <A bunch more rules to allow it>

Thanks all. Checked the docs again and they match what I was told on the phone by the plan manager. Just wanted to hear of real world experiences.

My plan has a $75 charge per w/d so will plan accordingly.

[BigBob]

My company just imposed a $50 w/d fee. It has been $0 for me for the past 2 years. Retired at 55.

[Z3Dreamer]

I did it. Spent (paid off some debt) about 25% and rolled over the remaining 75% to VG. Worked like a charm. No 10% penalty as I followed the rules.

[Dtail]

Quote:

Originally Posted by Al18 I retired a few months ago at age 56 and was able to withdraw from my 401K plan without penalty. 20% Federal Tax withholding in required per IRS rules - so plan accordingly. My plan was administered by Fidelity, and all questions about withdrawals were answered by Fidelity. It all went very smoothly and the only surprise was a $20 transaction charge.

Same setup and charges for me, except the plan is administered by MassMutual.

[CaptTom]

Interesting, I never heard about the transaction fee. Is that common? Do people set up monthly withdrawals or one lump sum annually?

I'm hoping to go quite a bit longer before needing to tap my 401k, so I haven't really looked into the details. Right now it's where MegaCorp put it, with Fidelity. So far no major complaints, but if they're gonna nickle-and-dime me with fees I'd start looking for alternatives. Maybe something with a few more options than what I get with the employer-sponsored plan.

[Spock]

Quote:

Originally Posted by Al18 I retired a few months ago at age 56 and was able to withdraw from my 401K plan without penalty. 20% Federal Tax withholding in required per IRS rules - so plan accordingly. My plan was administered by Fidelity, and all questions about withdrawals were answered by Fidelity. It all went very smoothly and the only surprise was a $20 transaction charge.

Interesting. I'm doing withdrawals from megacorp 401k at Fidelity and have not had any fed (or state) withholding.

[Al18]

I thought 20% Federal withholding was mandatory for 401K withdrawals, while state withholding was optional.


Are you paying quarterly taxes?

[BigBob]

Quote:

Originally Posted by CaptTom Interesting, I never heard about the transaction fee. Is that common? Do people set up monthly withdrawals or one lump sum annually? I'm hoping to go quite a bit longer before needing to tap my 401k, so I haven't really looked into the details. Right now it's where MegaCorp put it, with Fidelity. So far no major complaints, but if they're gonna nickle-and-dime me with fees I'd start looking for alternatives. Maybe something with a few more options than what I get with the employer-sponsored plan.

Yeah this was news to me as I was told by VG rep as I was finishing the transaction. Wondering if I could roll it off to a self directed ira and then exhaust it to avoid the fee. (Sneaky??&#128512
I am deliberately taking 401k funds so my rmd 's are smaller when I am collecting SS.

[skibum]

I have been using the rule of 55 to take 401k withdrawals w/o penalty from age 56-59. My plan with Megacorp is administered by Fidelity, allows two withdrawals per year max, no fee, mandatory 20% federal withholding, state withholding as requested. 1099-R sent (Distribution from pension, retiriement, IRA, etc), with distribution code 2 in Box 7 (Early Distribution, Exception Applies, under age 59 1/2). Turbotax books this as pension income, no penalty.

I take the withdrawal in late Dec to manage our AGI and tax withholding for the year.

I rolled other 401k funds into this plan to use this strategy, no problems.

Congratulation and best wishes on your upcoming retirement.

[skibum]

To be clear, the no penalty exception ONLY applies to the company 401k plan from which you departed at age 55+. This exception will not apply to any IRA rollover or other retirement fund, so you're stuck with the employee sponsored plan to utilize this exception.

Fidelity and other financial reps are always pushing to rollover 401k funds into an IRA for more options (true), no doubt this benefits them as well.

[jazz4cash]

Quote:

Originally Posted by CaptTom Interesting, I never heard about the transaction fee. Is that common? Do people set up monthly withdrawals or one lump sum annually? I'm hoping to go quite a bit longer before needing to tap my 401k, so I haven't really looked into the details. Right now it's where MegaCorp put it, with Fidelity. So far no major complaints, but if they're gonna nickle-and-dime me with fees I'd start looking for alternatives. Maybe something with a few more options than what I get with the employer-sponsored plan.

FWIW I have two 401k accounts at Fidelity and one charges transaction fees but the other does not. I had not thought about it before but I assume there’s no fee for regular monthly distributions. I’ll need to check on that. I think the difference is just how the custodian arrangement is negotiated between Fido and the employer. The no fee account is for a larger company and has a variety of features that are not typical. That plan was setup to be very favorable for employees.

[Dwhit]

I retired at 56 and used my 401k withdrawals to cover the gap till I got access to my ESOP at regular retirement age. It worked great, no problems. Good luck and congrats.

[Brett_Cameron]

Yes, I did this. Retired at 55. Withdrew funds from my company 401k (administered by T. Rowe Price) from 55 until 59 1/2. Rolled to IRA with Vanguard, smooth sailing.
IIRC, I had to setup a wtihdrawal scheme from the 401k that basically would have depleted the fund by age 70 in order to get a monthyl amount that would fit my budget. When I rolled from 401k to IRA i exited that scheme and set withdrawals as needed by my budget.