Withdrawal from 401k before 59 ½

[JBeez]

Hello from Tennessee. I’ll be 58 in September and would like to retire at that time. I just spoke with a financial planner who said I can make withdrawals from my company retirement plan (401k), without penalty, providing the following is met:

• the 401k is a company retirement plan
• I’m separated from the company
• I’m over 55 when separated from the company

I’ll meet this criteria, but didn’t realize this was possible without being penalized. I initially was seeking his advice/guidance using the 72t plan and he explained I won’t need to go that route. Can anyone tell me if his advice is correct? Thanks in advance.

 

[Sunset]

Welcome,

I do wonder from your post if you are prepared financially for retirement.
Don't you have 1.5 years worth of savings in a regular account ?
Have you done the firecalc to see if you truly have enough saved to retire ?

 

[travelover]

Legally, 401(k) plans can have this option, but not all plans do. You will need to get the plan documents and see if it allows for withdrawals at age 55.

 

[marko]

I believe there is an additional criteria which requires a regular, steady and repeated withdrawal. You might even have to fill out some form saying such.

I could be wrong but I'd check that out. If I'm right, I'd start by getting another FA

 

[RetireAge50]

Yes, he is correct:

Here is an excerpt from here https://www.irs.gov/taxtopics/tc558.html:

"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55"

 

[gregory r.]

The substantially equal periodic payments is related to 72T withdrawal. Your planner is correct. Just google Rule of 55 401k. My plan is silent on the language (Vanguard) and the HR reps indicate they follow IRS regulatory rules.
I did speak to an attorney who indicated regardless of what Plan Rules may dictate, they cannot override and be at odds WITH Federal/IRS law, which makes sense.

 

[SteveNU]

Check out your plans documents or give HR a call. My plan allowed it and I have used it since I retired at 56. No restriction on withdrawals with my plan except the withdrawal must be at least $500. I have made two withdrawals so far and you will get a 1099R at the end of the year.

Sent from my Nexus 7 using Early Retirement Forum mobile app

 

[Big_Hitter]

Yes, he is correct:

Here is an excerpt from here https://www.irs.gov/taxtopics/tc558.html:

"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55"

the plan document has to allow it; some don't

 

[skibum]

OK per tax code, which most plans allow. My 401k plan is managed by Fidelity, allows this withdrawal, but is limited to two draws per calendar year FYI.

 

[Big_Hitter]

OK per tax code, which most plans allow.

Mine doesn't

 

[SteveNU]

OK per tax code, which most plans allow. My 401k plan is managed by Fidelity, allows this withdrawel, but is limited to two draws per calendar year FYI.

Hmm, mine is managed by Fidelity also and as far as I know there was no limit on the number of withdrawals per year. I will have to check that for sure, it would suck if it was time to tap it again and I couldn't.

Sent from my Nexus 7 using Early Retirement Forum mobile app

 

[RE2Boys]

Really need to check with your plan administrator as some plans have limitations as to how often and how much you can withdraw. I've heard of some that it can be as bad as you must withdraw all or none.

 

[MRG]

Really need to check with your plan administrator as some plans have limitations as to how often and how much you can withdraw. I've heard of some that it can be as bad as you must withdraw all or none.

+1

Some plans make it impossible to do. That said, yes you MAY be able to do it, I've taken a couple of small withdrawals and no penalty.

Sent from my SAMSUNG-SM-G920A using Early Retirement Forum mobile app

 

[homestead]

fyi, They will automatically take out 20% for federal withholding on any
distributions from 401k.

 

[Big_Hitter]

fyi, They will automatically take out 20% for federal withholding on any
distributions from 401k.

not rollovers

 

[supernova72]

Hello from Tennessee. I’ll be 58 in September and would like to retire at that time. I just spoke with a financial planner who said I can make withdrawals from my company retirement plan (401k), without penalty, providing the following is met:

• the 401k is a company retirement plan
• I’m separated from the company
• I’m over 55 when separated from the company

I’ll meet this criteria, but didn’t realize this was possible without being penalized. I initially was seeking his advice/guidance using the 72t plan and he explained I won’t need to go that route. Can anyone tell me if his advice is correct? Thanks in advance.

I'm in the same scenario but am 55. I'm being told the same thing and there is an IRS doc that supports it (IRS pub 575). MUCH easier than the rule of 72t. Cheers.

 

[gauss]

Mine doesn't

I believe the only requirement that needs to be in the plan documents is the ability to take a withdrawal given your age and status.

I don't believe there is any requirement to cite age 55 and penalty-free status in the plan documents.

You will determine whether or not the distribution qualifies for the penalty-free withdrawal when you file form 5329 with your tax return. Line 2 Exception #01 is where this is implemented

Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from service when the separation from service occurs in or after the year you reach age 55 (age 50 for qualified public safety employees).

We had quite a discussion almost a year ago here regarding this topic.

-gauss

 

[homestead]

not rollovers

If you rollover then you have to wait until 59 1/2 without penalty.

 

[Big_Hitter]

If you rollover then you have to wait until 59 1/2 without penalty.

I rolled it into my current employer 401k

 

[Big_Hitter]

We had quite a discussion almost a year ago here regarding this topic.

-gauss

yeah that's ringing a bell

 

[gauss]

I rolled it into my current employer 401k

Distributions from IRAs don't qualify for the age 55 penalty-free treatment.

If you take a distribution from your current 401k and you separate in or after your 55th year, then the distribution should be penalty-free. Shouldn't matter that the funds were originally rolled-in from an external source.

If one's current 401k supports inbound rollovers from traditional IRAs then this could be a strategy to get more funds into a 401k that would be available penalty-free.

-gauss

 

[Big_Hitter]

If one's current 401k supports inbound rollovers from traditional IRAs then this could be a strategy to get more funds into a 401k that would be available penalty-free.

-gauss

Good point. No IRAs here. I don't plan on withdrawing from the company 401k plan any time soon. I'll wait till 59.5:

1) stable value fund - tough to get that kind of return outside an institutional fund
2) low cost - the k plan uses vanguard index funds, among others
3) annuity options - the k plan has whole/partial life/J&S annuity payout options

If I retire before then I'll just draw on cash/metals/LI or my DB pension which can begin in 3 years.

 

[tmm99]

Hello from Tennessee. I’ll be 58 in September and would like to retire at that time. I just spoke with a financial planner who said I can make withdrawals from my company retirement plan (401k), without penalty, providing the following is met:

• the 401k is a company retirement plan
• I’m separated from the company
• I’m over 55 when separated from the company

I’ll meet this criteria, but didn’t realize this was possible without being penalized. I initially was seeking his advice/guidance using the 72t plan and he explained I won’t need to go that route. Can anyone tell me if his advice is correct? Thanks in advance.

As others have said, it depends on the provider. I had the same question a few years ago, and everyone here suggested that I got a document called "Summary Plan Description" from my provider. (I didn't want to talk to HR because I didn't want them to know that I was planning an exit... They did go over the age 55 rule on my exit interview however...). The provider's document stated that I could in fact withdraw money from my 401K penalty free if I was 55 or older when my employment was terminated. The withdrawal doesn't need to be periodical or the same amount like with 72t, at least with my provider. This gave me options to withdraw money from my 401K as long as I did not roll that money over into my IRA. One thing I don't like about my 401K is that I will have to withdraw money proportionately from all my invested funds (instead of from a core cash fund like you could do with IRA's), so I am slowly moving my money out of my 401K to my IRA at the preferred time, but I am keeping some left in my 401K until I turn 59.5 years, just in case. It is great to have an option to be able to take out any amount of money any time without penalty, since I am not 59.5 years old yet.

 

[DrRoy]

I'm planning to RE next year at 57. A portion but not all of my IRA funding was from a 401K rollover about 12 years ago. Do I need to wait to 59 1/2 to tap that? Not a problem if yes.

 

[JBeez]

Thanks to everyone who replied. Just got off the phone with Vanguard, and providing the youngster who was assisting me knows his stuff, my current plan does not allow early distributions other than the norm, hardship, etc. He said I’d need to close out the retirement account (401k) and roll it over to an IRA. At that point I can make unlimited withdrawals w/o penalty. However, after looking at the replies here and the thread gauss referred to (quite a discussion), it appears I would get hit with the 10% penalty if I take distributions from the IRA setup from the rollover. If I understand it right, then the only alternative to avoid the 10% is the 72t plan, correct?