ER and 401k distributions before 59 1/2

I checked DW's SPD just for kicks, since I'm planning to rollover to an IRA after the last company contribution. They had a pretty ambiguous paragraph about separating at 55, though no other words about it in the normal withdrawal section.

The weird thing I encountered was that she can't withdraw the company contribution until age 70 or 70.5, I forget which. I've never heard of that kind of a restriction before. It didn't apply to simple rollovers. There were also restrictions on how many withdrawals she could take per year (one or two depending on type). Not terribly convenient if you wanted to change your withdrawal every month.
 
I have heard of restrictions on the frequency of withdrawals.

To restrict withdrawal of company contributions until age 70 or 70 1/2 is downright bizarre. What do you mean that it doesn't apply to "simple" rollovers?

I'd have to question whether such a restriction is legal. I always thought that once you were vested, that company contributions from that point forward were vested as well and can be withdrawn at any time subject to tax and penalties.
 
our option for no 10% tax hit.

BBQ-Nut said:
So, I'm really crunching scenarios to be FIRE - and I've asked my current megacorp 401k benefits center about the rules for early distributions from the 401k.

If I can RE - it will be after my 55 birthday while still employed at Megacorp.

So, when I asked the Benefits Center just to confirm that I could make distributions (not a roll over) from the 'qualified Plan' the reply was no - I have to wait until 59 1/2 - otherwise I get hit with the 10% early withdrawal.

I then replied that I have read that you *can* make early withdrawals w/o the 10% penalty as long as I am older than 55 and it is from that 401k.

I got a follow up reply saying, no you can't.

Hmmm...so I checked the IRS Publication 575 and it says I can.

So, should I just say thank you to the Benefits Center and let any penalty be the business of me and the IRS, or can my Megacorp 401K plan administrator really dictate/restrict my distributions if I do retire after 55 and not get anything before 59 1/2?
Click to expand...


Attached is a slide from a retirement seminar from the megacorp I work for. We can take distributions pre 59.5 without the 10% hit as long as we "retire" and "separate service" as they call it. It maybe have been covered in this thread but it's the SEPP part that is key for us (substantial equal periodic paymenets). We can keep ours in our 401K plan if we like. Most of the folks I talk to do that for the first 4.5 yrs. Hope this helps.

I would ask your beneifts dept again! Cheers.

55_401K.PNG
 
pb4uski said:
I have heard of restrictions on the frequency of withdrawals.

To restrict withdrawal of company contributions until age 70 or 70 1/2 is downright bizarre. What do you mean that it doesn't apply to "simple" rollovers?

I'd have to question whether such a restriction is legal. I always thought that once you were vested, that company contributions from that point forward were vested as well and can be withdrawn at any time subject to tax and penalties.
Click to expand...

"Simple" rollover was a rollover of the entire 401k into a traditional IRA.

Went back to the SPD for this:

"
Withdrawals After Age 59½​
If you are age 59½ or older, you may withdraw all or a portion of your accounts​
attributable to your regular and/or Roth contributions. Until your employment ends,​
Company Matching Contributions are not eligible for withdrawal before age 70½.​
You may not make more than one age 59½ withdrawal in any six-month period, and the​
minimum withdrawal you are allowed to take is $200.​
Withdrawals After Age 70½​
If you are age 70½ or older, you may withdraw all or a portion of your 401(k) Retirement​
Savings Plan account, including Company Matching Contributions.​
You may not take more than one age 70½ withdrawal in any six-month period, and the​
minimum amount you are allowed to take is $200 (or the remaining balance in your​
accounts)."

So the employee contribution thing was only if you are still employed with them. That's an easy problem to fix!

 
When it's time for her to retire (at or around age 55 in less than 2 yrs) I will approach them one more time with it. However, if I don't like the answer, I guess we'll just roll it into her IRA and decide from there how/when to access the account.
 
supernova72 said:
....We can take distributions pre 59.5 without the 10% hit as long as we "retire" and "separate service" as they call it. It maybe have been covered in this thread but it's the SEPP part that is key for us (substantial equal periodic paymenets). We can keep ours in our 401K plan if we like. Most of the folks I talk to do that for the first 4.5 yrs. ....
Click to expand...

I think this is the same as the 72t alternative that the OP refers to as his plan B in post #22.
 
We had the same issue with our HR. I think it was the issue, as noted above, that you have to leave the company. The trustee had no issue though and had us sign up for direct deposit.

However, once you roll it into an IRA, you lose the 55 - 59 1/2 bonus since there is clearly a penalty for non-72(t) withdrawals from the IRA.
 
I think the 55 rule requires you to separate from your Employer before getting the 401k distribution penalty-free. From your post it was not clear if you communicated this intent to the representative that you spoke with. Best bet is to review the plan document.

-gauss
 
As someone stated above, apparently even though the IRS "allows" penalty-free withdrawals from a 401k plan once the person retires during the year of their 55th birthday, the "plan" does not have to "allow" it if they don't want to. I don't see how this is right, though. Very frustrating.
 
martyb said:
As someone stated above, apparently even though the IRS "allows" penalty-free withdrawals from a 401k plan once the person retires during the year of their 55th birthday, the "plan" does not have to "allow" it if they don't want to. I don't see how this is right, though. Very frustrating.
Click to expand...

It would be even more frustrating if it wasn't set forth in the plan documents that every employee has access to but never reads. :facepalm:
 
In the same boat as you

We have run into the same problem as you. We cannot withdrawal from my husbands 401K plan. We have to do a roll over into an IRA. The plan is not written as such that after 55 and he retires from the company we can take out any money. So after talking to Fidelity and my accountant, we have decided December 31st of 2014, my husband will retire (he was going to retire at the end of June, but our CPA advised us not to for tax reasons since he has already made money this year). We will not be using the 72T rule as it doesn't give us enough $ to do what we want. We will instead do an NUA from our company stock in our 401K plan to cover our expenses (plus some cushion) for 30 months. No 10% penalty. Only have to pay capital gains tax on it. Not ideal, but it works. Good luck figuring our your numbers.
 
I retired from evil corp at age 55. Our plan allowed for early withdrawal at age 55. Fidelity was the plan administrator and they contacted me about rolling over the 401K into a managed account at Fidelity. I had to explain to THEM that I couldn't withdraw penalty free if I left the 401K.
 
Actually it my Fidelity rep's recommendation that made me check into the 55 rule. I'm sad to say I didn't know what a SPD was at that time.

Megacorp's SPD is very liberal, withdraw when you want, the amount you want, or set up periodic withdrawls(they can be altered anytime).

Its defined as a hardship withdraw, 55 or older and separated from service. I guess they wanted us old timers to go away.
MRG

Edit to add: I'm grateful Megacorp made this very easy.
 
Last edited:
Still have not heard back from my last reply quoting the excerpt from IRS Pub 575.

No matter, if that doesn't work out, then I did previously confirm that when I 'separate from service' I can do a partial IRA Rollover.

So that leaves open the option of rolling over a portion of my 401k - enough to do the 72t with a balance sized to meet my needs between 55 and 59 1/2.

Take that megacorp!
 
BBQ-Nut said:
So that leaves open the option of rolling over a portion of my 401k - enough to do the 72t with a balance sized to meet my needs between 55 and 59 1/2.

Take that megacorp!
Click to expand...

Sounds like you have a solution to ER! Congratulations! :dance:
 
BBQ-Nut said:
I have contacted our Plan Provider thru our Benefits Center - that is the only avenue of communication I know of. The actual assets under management is Hewitt - which is surprisingly not US but UK...so they must have a US branch - but their website makes my head explode.

I did reply back to the Benefits Center with the quoted excerpt from Pub 575 and the link to the IRS page - I have not heard back in the promised 24hr response time for inquiries - so I may have made their head explode! (ah - Karmic balance).

I've looked into the 72t approach - that may be my ticket.
Click to expand...

My experience with Hewitt - at my previous corporate overlord (my division was sold off last year - so no longer dealing with Hewitt)... They were only the provider of the user interface for the 401(k) - they did NOT manage the assets. In our case - Northern Trust was the actual plan provider.

Doesn't matter, since the 401k SPD was written by megacorp (not Hewitt or Northern Trust.)

The SPD is your guiding document.

It can be tricky getting the info you need. My newest corporate overlord was very small before acquiring my division. The HR department is less than knowledgeable and seems surprised by many of the questions asked at the time of acquisition. The 401k plan has many people involved in managing it: The Hartford, Mass Mutual, and many of the funds are Wells Fargo (but not all). It can be challenging to find the right person to contact with questions. It was challenging to deal with getting the overages above the federal limit refunded, because we were forced to change 401k plans mid year. When we were asking about the "true ups" - (which are mentioned in the SPD) - HR was initially clueless.

All of that is a fancy way of saying - I doubt Hewitt is actually responsible for the assets under management - they're just another layer (of possible ignorance or misinformation) between you and your money.
 
Well - I got my follow up reply and I got an apology from the Benefits Center for giving out wrong information!

Turns out I can withdraw w/o penalty from the Plan if I separate from service after 55 and before 59 1/2.

Which is good - I don't have to cook numbers with IRA Rollovers and the 72t calculations. It would have worked that way as well but more complicated.

So - back to my original plan.

I've saved their response for 'future reference'.
 
rodi said:
My experience with Hewitt - at my previous corporate overlord (my division was sold off last year - so no longer dealing with Hewitt)... They were only the provider of the user interface for the 401(k) - they did NOT manage the assets. In our case - Northern Trust was the actual plan provider.

Doesn't matter, since the 401k SPD was written by megacorp (not Hewitt or Northern Trust.)

The SPD is your guiding document.

It can be tricky getting the info you need. My newest corporate overlord was very small before acquiring my division. The HR department is less than knowledgeable and seems surprised by many of the questions asked at the time of acquisition. The 401k plan has many people involved in managing it: The Hartford, Mass Mutual, and many of the funds are Wells Fargo (but not all). It can be challenging to find the right person to contact with questions. It was challenging to deal with getting the overages above the federal limit refunded, because we were forced to change 401k plans mid year. When we were asking about the "true ups" - (which are mentioned in the SPD) - HR was initially clueless.

All of that is a fancy way of saying - I doubt Hewitt is actually responsible for the assets under management - they're just another layer (of possible ignorance or misinformation) between you and your money.
Click to expand...

This is pretty much the scenario with my wife's employer & their HR/benefits "expert".
 
BBQ-Nut said:
Well - I got my follow up reply and I got an apology from the Benefits Center for giving out wrong information!

Turns out I can withdraw w/o penalty from the Plan if I separate from service after 55 and before 59 1/2.

Which is good - I don't have to cook numbers with IRA Rollovers and the 72t calculations. It would have worked that way as well but more complicated.

So - back to my original plan.

I've saved their response for 'future reference'.
Click to expand...

Congratulations for having the persistence to get the correct answer. Many that follow you will benefit!
MRG
 
I have been researching this issue, too. My plan is managed by Fidelity, and I was able to find the explanation below, in our documents.

Something like this is what you are looking for:

If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions?​
This tax is in addition to the regular income tax on the payment not rolled over.
The 10% additional income tax does not apply to the following payments from the Plan:​
· ​
​
​
​
Payments made after you separate from service if you will be at least age 55 in the year of the separation​

· ​
​
​
​
Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or life expectancy (or the lives or joint life expectancy of you and your beneficiary)​

 
BBQ-Nut said:
Well - I got my follow up reply and I got an apology from the Benefits Center for giving out wrong information!

Turns out I can withdraw w/o penalty from the Plan if I separate from service after 55 and before 59 1/2.

Which is good - I don't have to cook numbers with IRA Rollovers and the 72t calculations. It would have worked that way as well but more complicated.

So - back to my original plan.

I've saved their response for 'future reference'.
Click to expand...

Excellent! Your perseverance paid off.
 
BBQ-Nut said:
Well - I got my follow up reply and I got an apology from the Benefits Center for giving out wrong information!

Turns out I can withdraw w/o penalty from the Plan if I separate from service after 55 and before 59 1/2.

Which is good - I don't have to cook numbers with IRA Rollovers and the 72t calculations. It would have worked that way as well but more complicated.

So - back to my original plan.

I've saved their response for 'future reference'.
Click to expand...

Excellent!!! in retrospect, do the think the wrong answers you were previously given were due to the way you asked the question or that they just gave you the wrong answer? If the latter, it may be worthwhile to point it out to those running the Benefits Center so they can improve their CSR training so others can avoid what you had to go through.
 
I just looked up my plan description, and they only withhold the 20% for taxes. They say I could be liable for the 10% penalty for most withdrawals before 59 1/2, but I'm the one who has to pay it.

The IRS website says:

Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances:
...

  • Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.
So, it would seem to me that a plan may elect to withhold an amount equal to the penalty, but you will get it back when you file, if you meet the criterion... ??
 
pb4uski said:
Excellent!!! in retrospect, do the think the wrong answers you were previously given were due to the way you asked the question or that they just gave you the wrong answer? If the latter, it may be worthwhile to point it out to those running the Benefits Center so they can improve their CSR training so others can avoid what you had to go through.
Click to expand...

Well, I looked at what I wrote and was pretty explicit in asking if withdrawals were permitted w/o penalty after I turned 55, was still employed at that time, then 'separated service'.

I'll follow up with a thank you and your suggestion.

Thanks!
 
Quick question: what type of plan is your "401k"? I ask because the term 401k is used often but not all employer sponsored retirement plans are 401ks. Furthermore not all employer sponsored retirement plans are actually qualified.


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