Split 401K withdrawal and IRA Rollover

[Al18]

I reviewed my 401K Summary Plan Description and it appears I can take a 401K withdrawal at age 55+ and rollover the remaining to an IRA. 20% Federal Taxes will be withheld from the 401K and no taxes withheld on the IRA rollover. No specifics on changes in the plan. Has anyone done this?



This split option sounds good - allowing me to convert some of my bond funds to a 5 year CD ladder. I'm planning on retiring September 2018 at age 55.

 

[VanWinkle]

I reviewed my 401K Summary Plan Description and it appears I can take a 401K withdrawal at age 55+ and rollover the remaining to an IRA. 20% Federal Taxes will be withheld from the 401K and no taxes withheld on the IRA rollover. No specifics on changes in the plan. Has anyone done this?



This split option sounds good - allowing me to convert some of my bond funds to a 5 year CD ladder. I'm planning on retiring September 2018 at age 55.

Early withdrawals from a 401K without a penalty are under 72T of the tax code. You can make scheduled withdrawals of equal amounts at age 55 from the company 401K where you retire. I have not done this in the past, but have read about it. You can also convert your 401K to an IRA at retirement. I would make sure that the 401K doesn't have better choices and expenses before converting. Some have a "stable value" type of bond fund that can't go down in value and pays decent interest. You won't find that in your IRA.

 

[bingybear]

What are you trying to do? Are you still going to be working? Do you have taxable basis in IRAs or 401ks? Do you need the 401k $ to support your RE?

For me, I rolled all my 401k to IRA and have been doing roth conversions. But I'm not using TIRA to fund living.

You stated you have 2 choices of what to do with your 401k and that you want to convert bond investment to CD ladders. Need more info to provide anything meaningful.

 

[pb4uski]

I reviewed my 401K Summary Plan Description and it appears I can take a 401K withdrawal at age 55+ and rollover the remaining to an IRA. 20% Federal Taxes will be withheld from the 401K and no taxes withheld on the IRA rollover. No specifics on changes in the plan. Has anyone done this?



This split option sounds good - allowing me to convert some of my bond funds to a 5 year CD ladder. I'm planning on retiring September 2018 at age 55.

You don't need to do a withdrawal to convert your bond funds to a CD ladder. Your better play is to rollover it all to a IRA and then invest a portion of the IRA in a CD ladder the do withdrawals as rungs on the ladder mature.

If you work for 9 months and then do a big withdrawal you will get nailed with taxes. If you decide that you still want to do the withdrawal then you are better off doing the withdrawal in 2019 once you are retired... do the IRA rollover and then withdraw from the IRA or do a partial IRA rollover and withdraw from what is left in the 401k. But before you act be sure to check to see what constraints the 401k administrator places on 401k withdrawals... some plans only allow withdrawals once a year or have other restrictions.

 

[Winemaker]

Early withdrawals from a 401K without a penalty are under 72T of the tax code. You can make scheduled withdrawals of equal amounts at age 55 from the company 401K where you retire. I have not done this in the past, but have read about it. You can also convert your 401K to an IRA at retirement. I would make sure that the 401K doesn't have better choices and expenses before converting. Some have a "stable value" type of bond fund that can't go down in value and pays decent interest. You won't find that in your IRA.

Depending on the rules of your 401k, you do not necessarily have to do 72t withdrawals before 59.5. Under my plan, a separation of service, as in retirement, has allowed me to make withdrawals from my 401k without penalty for the past 4 years.

tIRAs require 72t withdrawals before 59.5.

 

[pb4uski]

Since the OP indicates that he plans to retire at age 55 I presume that there will be no penalty since he separates service in the year that he turns 55. BTW, technically no reason to wait till his birthday.

 

[iloveyoga]

I have a technical question that goes along with this thread. I found this on the IRS website for when the 10% penalty does not apply related to a 401(k) plan:

the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)**

Does anyone know, does this mean the calendar year in which you turn 55 or the 12 months before you turn 55? Thank you much in advance.

 

[jazz4cash]

It is the calander year that you attain age 55

 

[iloveyoga]

It is the calandra year that you attain age 55

OK, thank you, i was hoping it was "the year". I worked in the 401(k) business but never thad this come up.

 

[jazz4cash]

The feedback is all over the map on this. OP should clarify their needs and desires. No need to rush. How is the IRA Rollover to be used. How will the remaining 401k funds be used? There is no requirement for equal payments under the age 55 exception

I did do something similar. Retired between 55 and 59.5 and had the age 55 exception as a backup (wasn't needed). My 401k permitted unlimited rollovers so I had started an IRA CD ladder a few years before whenever CD specials were available. I saved up as much as possible in online savings accounts in the final months before ER.

 

[jazz4cash]

OK, thank you, i was hoping it was "the year". I worked in the 401(k) business but never thad this come up.

To be more accurate, the rule applies if you separate from the employers 401k plan in the calander year you attain age 55 or any year after that. Sometimes an old 401k can be rolled into current employers plan to qualify.

 

[Al18]

I'm 55, so there's no penalty for 401K withdrawals.


What I found interesting is the SPD says I can keep some money in the 401K and do a partial IRA Rollover for the remaining money. This would allow me to withdraw some money now (from the 401K).


I've been participating in this forum a few years and don't recall anyone doing a partial IRA Rollover - just looking for feedback.

 

[Winemaker]

I did a partial rollover in 2008 and another in 2014. My 401k in 2008 did not have a fixed income/bond choice, so I rolled $150k into a brokerage fund. In 2014, I felt I could create my own PGX etf, so I rolled another $100k into FIDO.

 

[jazz4cash]

I'm 55, so there's no penalty for 401K withdrawals.


What I found interesting is the SPD says I can keep some money in the 401K and do a partial IRA Rollover for the remaining money. This would allow me to withdraw some money now (from the 401K).


I've been participating in this forum a few years and don't recall anyone doing a partial IRA Rollover - just looking for feedback.

I think most of us just don't bother to mention "partial". It's quite common but some plans are restrictive about rollovers. The partial rollovers are great for investment options outside your plan like the CDs you are interested in. Does your plan have a good Stable Value Fund?