Who makes the W/D rules for 401k's

[JohnDoe]

The company or the government?

While still employed and under 59.5, company says loans only, or hardship w/d's. Nothing else is allowed. Company says not allow to w/d, pay 20% tax, and 10% early w/d penalty.

Whose rule is that?

[FinanceDude]

Quote:

Originally Posted by JohnDoe The company or the government? While still employed and under 59.5, company says loans only, or hardship w/d's. Nothing else is allowed. Company says not allow to w/d, pay 20% tax, and 10% early w/d penalty. Whose rule is that?

The IRS.............

Keep in mind there is a provision called 72T that allows you to take equal amounts each year starting as age 54.5..................

[MasterBlaster]

The longer answer is that yes the IRS sets guidelines that must be followed by every 401k. However beyond that rules are left for the employer to make.

As long as the rules are in compliance with IRS guidelines then the employer has latitude to make rules.

In general, withdrawals from 401ks are not allowed prior to age 59.5 or at age 55 if service with the company terminates

However, as I recall, you can take out money for "hardship events". A hardship event is things like major medical bills, your house is being foreclosed on, etc. A hardship event is not - "I want a new SUV or that trip to Spain"

here is a link that discusses some of the 401k withdrwal rules...

http://www.money-zine.com/Financial-...ip-Withdrawal/

[teejayevans]

[quote=FinanceDude ]
The IRS.............

Keep in mind there is a provision called 72T that allows you to take equal amounts each year starting as age 54.5..................
[/quote
I don't remember any minimum age for 72T, once you start you keep going till 59.5
or 5 years, whichever is longer
Tom]

[jazz4cash]

FinanceDude.........here we go again!
I believe 72t applies to IRA's not 401ks, but sometimes you can roll funds from a 401k to an IRA, and then do 72t.

The company can dictate some rules (such as permitting rollovers into or out of a 401k) but of course they must comply with the broader set of IRS rules under provisions of 401(k). I have always thought some plan providers discourage companies from allowing rollovers so they can keep the funds captive. Some companies want to discourage employees from squandering thier retirement.

[Payin-the-Toll]

MasterBlaster: Don't know the rules of other companies, but my wife was allowed to withdraw 401k $ at age 54 1/2 under the L.E.I. (lifetime expected income). They set the amount, and although they say it is lifetime, it is only for 5 years, or until you reach 59 1/2, whichever comes last. If you change the amount or withdraw any extra money, then the penalties kick in. Oh, she retired at 53.

[USK Coastie]

IIRC if you terminate service at or beyond 55 years old in a 403 b or 401k and your company allows, you can withdraw the funds without a 10 % penalty. Having just gone through a corporate merger I went from a 403b that did not allow withdrawls (had to switch to an IRA or by a life annuity ) to a plan where you could withdraw your 403b at what ever rate you set but they pay a flat 20 % to the IRS and you can get any excess taxes back when you file.
So the bottom line is ask your benifits people how your plan is structured and plan accordingly.
With these changes for my plan I'll fire in 100 days instead of 37 months

[FinanceDude]

Quote:

Originally Posted by jazz4cash FinanceDude.........here we go again! I believe 72t applies to IRA's not 401ks, but sometimes you can roll funds from a 401k to an IRA, and then do 72t. The company can dictate some rules (such as permitting rollovers into or out of a 401k) but of course they must comply with the broader set of IRS rules under provisions of 401(k). I have always thought some plan providers discourage companies from allowing rollovers so they can keep the funds captive. Some companies want to discourage employees from squandering thier retirement.

What you are referring to is "non-hardship" transfers to an IRA. Many plans have a feature that allows you to transfer some of your money to an IRA WHILE you are still WORKING there.

Personally, I wish that EVERY retirement plan had that provision in it. Still today, there are MANY crappy plans with bad fund choices that are "killing" their participants.............

[bssc]

Quote:

Originally Posted by FinanceDude What you are referring to is "non-hardship" transfers to an IRA. Many plans have a feature that allows you to transfer some of your money to an IRA WHILE you are still WORKING there. Personally, I wish that EVERY retirement plan had that provision in it. Still today, there are MANY crappy plans with bad fund choices that are "killing" their participants.............

We have the same setup. I have to invest in a select set of mutual funds rather than roll it over to my IRA where I can run my own stock portfolio.

[Buckeye]

From what I understand about my company's 401(k), we can retire at 50 and begin penalty-free withdrawls. This sounds a little unusual from all that I have read but our HR VP said that is how our plan is structured. Small, family-owned company.

[REWahoo]

Quote:

Originally Posted by Buckeye From what I understand about my company's 401(k), we can retire at 50 and begin penalty-free withdrawls. This sounds a little unusual from all that I have read but our HR VP said that is how our plan is structured. Small, family-owned company.

I'd be very skeptical of what he's telling you.

Regardless of how your plan might be structured, I don't believe the IRS will allow a penalty free withdrawal from a 401k prior to age 59.5 unless you lose your job at age 55 or later. You can withdraw using 72t after age 50 and may also be able to get a penalty free withdrawal under some hardship, education, and 1st time home buyer exceptions. But start routine withdrawals at age 50 without penalty - I don't think so.

[Dog]

Quote:

Originally Posted by REWahoo! I'd be very skeptical of what he's telling you. Regardless of how your plan might be structured, I don't believe the IRS will allow a penalty free withdrawal from a 401k prior to age 59.5 unless you lose your job at age 55 or later.

I've read several articles that mention the ability to withdraw from a 401k penalty free as long as the employment is terminated. Does this also mean that the employee can choose to ER at 55 and tap into 401k?

[REWahoo]

Quote:

Originally Posted by Dog I've read several articles that mention the ability to withdraw from a 401k penalty free as long as the employment is terminated. Does this also mean that the employee can choose to ER at 55 and tap into 401k?

Yes, but it will require the cooperation of your ex-employer to allow you to take periodic withdrawals, something many/most of them don't want to deal with. You might want to take a look at this REHP article on withdrawing money penalty-free from your 401k/IRA :

http://www.retireearlyhomepage.com/wdraw59.html

[Buckeye]

Wahoo - I'll check next week on the withdrawl details. I'm curious now.

[jazz4cash]

I checked my notes and I was incorrect when I said 72t did not apply to 401k....it applies to most retirement "k" plans as well as IRA's. When I researched 72t's some time ago, it was recommended to seperate the 72t funds in a seperate IRA, using a rollover from a 401k if available. That way you can distribute only what is needed and leave the rest unaffected.

Anyway, I said Finance Dude was incorrect which was my error, so sorry.