401K Distributions

[Yipper]

Are most 401K plans limiting withdrawals to only lump sum or can you make regular distributions from most/many 401K plans?

I'm asking because I received a notification on distributions and how they're handled by my Megacorp 401K at Fidelity. Seems the only withdrawal option they offer is a lump sum which seems confusing. Extremely possible that I'm reading this incorrectly and I suspect I'll need a call into Fidelity for clarity in my understanding.

 

[badatmath]

I have several options listed on mine though I have not taken any yet. Just call and ask.

 

[Sunset]

If the 401K is limited to 1 lump sum withdrawal, it's best to have them roll it over to a "rollover IRA" .

Then you are free to withdraw as many times as you like.

Don't make the mistake of withdrawing the money from the 401K all at once, or your tax bill will cause a heart attack !!

 

[Al18]

My 401K plan that was administered by Fidelity had no limits on withdrawals after retirement. This was not spelled out in the Summary Plan Document - I had to call the Fidelity rep that was assigned to my plan.

 

[Out-to-Lunch]

If you are not yet 59.5, and planning to use those funds, that can be a problem. I don't know if "most/many" are limited. Doesn't really matter! Some are, some aren't. You need to know about yours.

If you are younger than 59.5, and want to use those funds, there are some ways: https://www.madfientist.com/how-to-access-retirement-funds-early/

 

[Car-Guy]

Are most 401K plans limiting withdrawals to only lump sum or can you make regular distributions from most/many 401K plans?

I'm asking because I received a notification on distributions and how they're handled by my Megacorp 401K at Fidelity. Seems the only withdrawal option they offer is a lump sum which seems confusing. Extremely possible that I'm reading this incorrectly and I suspect I'll need a call into Fidelity for clarity in my understanding.

Mine allows 2 per year. 1st one can be any amount but the second one in the same calendar year must be 100% of the remaining funds. Sort of sucks if you ask me.

If the 401K is limited to 1 lump sum withdrawal, it's best to have them roll it over to a "rollover IRA" .

Then you are free to withdraw as many times as you like.

Seriously considering doing that for the flexibility. The only thing stopping me is I get a better rate of return in my 401k than I'm getting in my tIRA.

 

[jazz4cash]

I am very surprised if the info is not spelled out in the SPD. If not, the prospectus should spell it out. If you call Fido or an admin I suggest you have them tell you exactly where the plan documents explain the options. I’ve had reps give me inaccurate info so I am extra careful.
I had two 401k plans with Fido and there were many differences based on the arrangement between Fido and the employer. I have read about many cases where employees are ‘encouraged’ to withdraw from the plan when they become inactive. If the employer is paying fees for each participant they may feel it is best to push inactives out. I think that is more likely with smaller employers. One of my plans started charging fees for withdrawals and maintenance. I got the message and moved those funds to a rollover IRA at Fido. I have many, many options for systematic and lump sum withdrawals.

 

[Gumby]

Before we get to RMD age, we will have rolled over our scattered 401k, 403b and 457 accounts to a single tIRA for each of us.

 

[Yipper]

Thanks for the input everyone. I'm older than 59.5 and aware of the implications of getting taxed all at once on the 401K balance.

Looking at the SPD, it lists only 1 option for withdrawal and that's lump sum unfortunately. I'll be calling Fidelity in the coming weeks to get more clarity but I may need to move everything at some point to an IRA if there's no other option.

What's annoying is that I hate to have to liquidate everything in the "401K Brokerage Link" option that I have been taking advantage of for years, move it all to the actual 401K and then have it all moved as a single cash transaction.

I have moved my wife's IRA in Vanguard to Fidelity and they moved all of her investments without having to liquidate anything. Kind of odd that if I was to move a Fidelity 401K to a Fidelity IRA they need everything sold, etc. etc.

 

[pb4uski]

... Don't make the mistake of withdrawing the money from the 401K all at once, or your tax bill will cause a heart attack !!

Unless you deposit that money into a traditional IRA as a rollover contributions within 60 days.

 

[pb4uski]

... What's annoying is that I hate to have to liquidate everything in the "401K Brokerage Link" option that I have been taking advantage of for years, move it all to the actual 401K and then have it all moved as a single cash transaction.

I have moved my wife's IRA in Vanguard to Fidelity and they moved all of her investments without having to liquidate anything. Kind of odd that if I was to move a Fidelity 401K to a Fidelity IRA they need everything sold, etc. etc.

Have you verified this with Fidelity? I would think that if you initiated a trustee-to-trustee transfer from the Fidelity traditional side to pull from the Fidelity 401k "in-kind" would be worth a try.

 

[Gumby]

Unless you deposit that money into a traditional IRA as a rollover contributions within 60 days.

But they will likely hold 20% taxes on the distribution, so you would need to make that up from outside cash.

 

[foxfirev5]

A year after I retired I went to the local Fidelity office and did a "transfer in kind" of my 401k to an IRA. I watched as the IRA was filled with my 401k investments. No exposure to time out of the market. It was the only way I could access my money from the 401k without withdrawing the entire balance. My former employer would not allow partial withdrawals.

 

[pb4uski]

^^^ What you describe is exactly what I was trying to describe in post #11.

 

[jollystomper]

Are most 401K plans limiting withdrawals to only lump sum or can you make regular distributions from most/many 401K plans?

It depends. Best to talk to the plan administrator. For example, with my 401K plan, I (NOTE: I am over age 60) can take a distribution of any amount from my Fidelity 401K at any time. The only variance is that if I want to take a distribution from one or more specific funds with specific amounts (instead of withdrawing from all funds, spread across them based on their percentage of the 401K), I have to call.

I can also schedule automatic periodic distributions, but do not have a need for that.

I have done this to cover taxes (in lieu of quarterly estimated tax payments), to rollover to my tIRA (also at Fidelity, I have to call for this action but it is a smooth process and no tax issues) and once (the first time) just for fun, after I retired .

 

[Dtail]

But they will likely hold 20% taxes on the distribution, so you would need to make that up from outside cash.

When we transferred the GTE CD certificate to Fidelity IRA, there was no withholding for taxes.

 

[pb4uski]

When we transferred the GTE CD certificate to Fidelity IRA, there was no withholding for taxes.

But that was a trustee-to-trustee transfer and we were talking about a scenario where you get a check made out to you as a distribution and then deposit the check into an IRA as a rollover contribution and I think Gumby is probably right that there would be 20% mandatory withholding.

 

[Dtail]

But that was a trustee-to-trustee transfer and we were talking about a scenario where you get a check made out to you as a distribution and then deposit the check into an IRA as a rollover contribution and I think Gumby is probably right that there would be 20% mandatory withholding.

Actually PB, it was not a trustee to trustee transfer. It was an actual check from GTE then a deposit to Fidelity.
Yes a PITA, but other transfers from GTE have not been smooth, so made the 45 minute trip to the Fidelity office.

 

[jazz4cash]

.

What's annoying is that I hate to have to liquidate everything in the "401K Brokerage Link" option that I have been taking advantage of for years, move it all to the actual 401K and then have it all moved as a single cash transaction.

I have moved my wife's IRA in Vanguard to Fidelity and they moved all of her investments without having to liquidate anything. Kind of odd that if I was to move a Fidelity 401K to a Fidelity IRA they need everything sold, etc. etc.

Maybe I missed it…..unless you have investments that are proprietary to the 401k you should be able to transfer in-kind without liquidating.

 

[jazz4cash]

Actually PB, it was not a trustee to trustee transfer. It was an actual check from GTE then a deposit to Fidelity.

Yes a PITA, but other transfers from GTE have not been smooth, so made the 45 minute trip to the Fidelity office.

The withholding rules are different when you move funds from a 401k. Also, it could still be trustee to trustee if the check was made payable to the new custodian. That’s what I usually do.

 

[pb4uski]

The withholding rules are different when you move funds from a 401k. Also, it could still be trustee to trustee if the check was made payable to the new custodian. That’s what I usually do.

Yes, if the check was made out to the new trustee, FBO, for the benefit of Dtail then it would be a trustee-to-trustee transfer even though it was a check and not subject to withholding.

 

[Spock]

Unless you deposit that money into a traditional IRA as a rollover contributions within 60 days.

I've done "cash distributions rolled over to an IRA within 60 days" twice.
Both times resulted in IRS audits. The first time dealing with the IRS inquiry was simple.


The second time was a year long mess of back and forth visiting the local IRS office in person multiple times trying to fathom what the IRS's issue was. IRS eventually threatened to freeze/seize bank accounts, etc. Turns out all that after all that mess all the IRS wanted was to know that the rollover occurred in 60 days... it had occurred within 60 MINUTES as I literally walked the check across the parking lot to the destination institution. And IRS ended up taking my verbal word for it! When I asked what they needed for documentation they said "nah... we're good" and that was the end of it.


To this day my wife freaks out when we get envelopes from the IRS. I have to warn her in advance when I order pubs/docs/forms by mail.



I'm never touching proceeds during a roll over again. I point the destination institution at the source and let them transfer directly.

 

[jazz4cash]

I always do direct transfers and I prefer to have checks sent to me payable to new custodian. That way it avoids finger pointing.

I have one in process now. It was initiated at Fido to pull funds from my small local bank. This bank does not print full account numbers on any documents or their web page. They do not provide statements for IRA accounts. They sent me a computer screenshot but it still doesn’t show the account #. I could’ve had them cut a check made payable to Fido but last time they sent me a 1099R which took a year to sort out with IRS.

 

[Yipper]

Have you verified this with Fidelity? I would think that if you initiated a trustee-to-trustee transfer from the Fidelity traditional side to pull from the Fidelity 401k "in-kind" would be worth a try.

That's my plan... hoping they can accommodate.

 

[Yipper]

A year after I retired I went to the local Fidelity office and did a "transfer in kind" of my 401k to an IRA. I watched as the IRA was filled with my 401k investments. No exposure to time out of the market. It was the only way I could access my money from the 401k without withdrawing the entire balance. My former employer would not allow partial withdrawals.

Thanks. I'm hoping this can work for me. My 401K is using the "Brokerage Link" option that Fidelity has for our 401K (not sure all Fidelity 401Ks have this).