401K Early Withdrawals

[PERSonalTime]

I know that you can make an early withdrawal from a 401(k) if you're at least 55 years of age and are retiring from your employer/company where you have your 401(k) account. But what if you retire from that employer and then go back to work for someone else. Can you still withdraw from the 401(k) account of your former employer or do you have to stop?


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[Sunset]

I believe you can, but please check with irs before you take action.

 

[PERSonalTime]

Thanks. Does anyone else have any thoughts on this?


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[MRG]

I've withdrawn from mine. I know the plan administrator/custodian would have no idea if I was working. So they wouldnt stop the disribution. The only folks that would is IRS after the fact. From reading the regulation I think you can(IIRC). I would check with a tax pro, that's not me!

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[gauss]

Make sure that your particular 401k plan offers this option. It should be discussed in the Summary Plan Document (SPD) for the 401k.

I believe that the IRS allows plans to support this age 55 withdrawal rule, but they do not necessarily require the plans to implement it.

You might wish to also check over at fairkmark.com where they have a serious focus on retirement taxation issue.

-gauss

 

[martyb]

My wife's employer apparently doesn't allow the age-55 withdrawals. When I tried to question her company's employee relations person, she was clueless about it. I continued to.press the issue & she finally consulted
someone higher up & the final verdict was that nope, not something they do. I have no idea we why, other than to prevent employees from retiring early. Won't work in this case. I already told DW she"s free to stop working anytime she likes. ...at 55 or beyond. She"s 53 now. Actually, I don't care if she retires tomorrow. We'd be fine either way.


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[jazz4cash]

I am working for a spin-off from megacorp. Our custodian has advised me that I am required to be seperated from both companies before I could use this exception. No restrictions to working anywhere else, but they do require documentation from employer that I have separated.

 

[jazz4cash]

My wife's employer apparently doesn't allow the age-55 withdrawals. When I tried to question her company's employee relations person, she was clueless about it. I continued to.press the issue & she finally consulted
someone higher up & the final verdict was that nope, not something they do. I have no idea we why, other than to prevent employees from retiring early. Won't work in this case. I already told DW she"s free to stop working anytime she likes. ...at 55 or beyond. She"s 53 now. Actually, I don't care if she retires tomorrow. We'd be fine either way.


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I would have to see it in writing. I have had several instances of the HR Dept and/or Custodian not knowing the details.

 

[MRG]

I would have to see it in writing. I have had several instances of the HR Dept and/or Custodian not knowing the details.

+1
It happens too often where even if the SPD says you can, there's no provision to receive funds.

You owe it to yourself to check that out.


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[daylatedollarshort]

We do this.

"This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanently. You can go to work for another employer, or even return to work for the same employer at a later date. But you cannot receive a distribution from your employer's retirement plan while you are still employed with the company if you want to use the age 55 exception to the early distribution tax."

Source:
Getting Your Retirement Money Early -- Without Penalty | Nolo.com

 

[PERSonalTime]

We do this.

"This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanently. You can go to work for another employer, or even return to work for the same employer at a later date. But you cannot receive a distribution from your employer's retirement plan while you are still employed with the company if you want to use the age 55 exception to the early distribution tax."

Source:
Getting Your Retirement Money Early -- Without Penalty | Nolo.com

Thanks. I think I'll take advantage of this option as it becomes applicable to my situation. I wonder if this provision applies to 403b plans as well?


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[gauss]

Make sure that your particular 401k plan offers this option. It should be discussed in the Summary Plan Document (SPD) for the 401k.

I believe that the IRS allows plans to support this age 55 withdrawal rule, [-]but they do not necessarily require the plans to implement it[/-].

You might wish to also check over at fairkmark.com where they have a serious focus on retirement taxation issue.

-gauss

I am going to CORRECT my post from above.

It appears that the IRS requires 401k sponsors to use box 7 / code 2 'Early Distribution, exception applies' on the 1099-R that they send you if they know that you meet the qualifications for the rule of age 55. This will avoid the 10% early withdrawal penalty. No support for this is needed in the plans SPD document.

Even if the employer screws up and uses code 1 ' Early distribution, no known exception' on box 7 in the 1099-R, the employee can still file form 5329 line 2 to correct this with the IRS.

You might still need to verify with your plan documents (ie SPD) under what conditions your 401k plan allows withdrawals.


references
- Publication 575 Pension and Annuity Income
- Instructions for Forms 1099-R and 5498
- Instructions for Form 5329

Sorry for the red herring originally posted above.


-gauss

 

[PERSonalTime]

Thanks for the update.


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[2B]

You will pay income taxes on any withdrawals but the age 55 option lets you avoid the penalty. The other approach is to roll it over to an IRA and take a 42t.