Finance Dave
Thinks s/he gets paid by the post
- Joined
- Mar 29, 2007
- Messages
- 1,861
Ok, so I know that if you separate service from an employer at age 55, you can take your 401k and run without the usual 10% penalty...but I do have some clarifying questions.
This relates to my DW, who will be 55 on Feb 6th, 2013 and may leave the company during 2013.
Let's assume for the sake of argument that she makes $100,000/year. Further assume she has two plans at work. One is a 401k plan, which has a combination of:
After-tax employee contrib - $20k
Pre-tax employee contrib - $50k
Employer contrib to pre-tax - $12k
Growth - $28k
Total 401k = $110k
She also has a cash balance plan. This is a defined contribution plan whereby employer puts 6% of pay into a trust account, employer adds nothing, and it grows. Let's assume this has $130k.
So now my questions are:
1) Does the ability to withdraw the money apply to both the 401k and the cash balance account after 55 upon separation?
2) Is this one of those things where the law permits it, but I have to check with employer to see if they allow? Or is the law clear that they MUST allow it?
3) Is the timing of her separation important? For example, let's assume for simplicity she is single. If she works only 2 months in 2013, then separates, the pre-tax portion would go against regular income...but since her annual income is so low due to separating early in the year...her marginal tax rate would still be quite low. However, if she instead separated on 12/15/13, her income would be nearly $100k from wages, PLUS $90k of pre-tax from the 401k, thus triggering a huge tax bill. Would it therefore be smarter to wait in the latter situation until January of 2014 to take the distribution? Is she allowed to wait over the end of a year like that?
4) I would imagine the cash balance money would be treated as pre-tax given that no taxes have been paid on this...do you agree?
Any other considerations I should be aware of?
I'm only 50...so this likely will not be an option for me. I'm still working and earning over 6-figures...so we may not do this regardless...I'm just trying to understand all the options at this point.
THanks for all your views in advance.
Dave
This relates to my DW, who will be 55 on Feb 6th, 2013 and may leave the company during 2013.
Let's assume for the sake of argument that she makes $100,000/year. Further assume she has two plans at work. One is a 401k plan, which has a combination of:
After-tax employee contrib - $20k
Pre-tax employee contrib - $50k
Employer contrib to pre-tax - $12k
Growth - $28k
Total 401k = $110k
She also has a cash balance plan. This is a defined contribution plan whereby employer puts 6% of pay into a trust account, employer adds nothing, and it grows. Let's assume this has $130k.
So now my questions are:
1) Does the ability to withdraw the money apply to both the 401k and the cash balance account after 55 upon separation?
2) Is this one of those things where the law permits it, but I have to check with employer to see if they allow? Or is the law clear that they MUST allow it?
3) Is the timing of her separation important? For example, let's assume for simplicity she is single. If she works only 2 months in 2013, then separates, the pre-tax portion would go against regular income...but since her annual income is so low due to separating early in the year...her marginal tax rate would still be quite low. However, if she instead separated on 12/15/13, her income would be nearly $100k from wages, PLUS $90k of pre-tax from the 401k, thus triggering a huge tax bill. Would it therefore be smarter to wait in the latter situation until January of 2014 to take the distribution? Is she allowed to wait over the end of a year like that?
4) I would imagine the cash balance money would be treated as pre-tax given that no taxes have been paid on this...do you agree?
Any other considerations I should be aware of?
I'm only 50...so this likely will not be an option for me. I'm still working and earning over 6-figures...so we may not do this regardless...I'm just trying to understand all the options at this point.
THanks for all your views in advance.
Dave