Join Early Retirement Today
Reply
 
Thread Tools Display Modes
401k Withdrawal at 55 or older with no Penalty
Old 12-17-2010, 12:29 PM   #1
Recycles dryer sheets
 
Join Date: Mar 2008
Posts: 413
401k Withdrawal at 55 or older with no Penalty

Here is a tax loophole I was not aware of.

During a company sponsored seminar for retirement planning, the presenter mentioned that if you are 55 or older, and have a separation in service (retired early after 55) you can withdraw any amount of money from a "Qualified" 401k without penalty.

I had to check this to make sure it was correct. Sure enough, the presenter was correct. Here's the IRS link that explains it.
401(k) Resource Guide - Plan Sponsors - General Distribution Rules

Tax on early distributions. If a distribution is made to a participant before he or she reaches age 59½, the participant may be liable for a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income.

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

Made to a beneficiary (or to the estate of the participant) on or after the death of the participant.
Made because the participant has a qualifying disability.
Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.)
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.
Made to an alternate payee under a qualified domestic relations order (QDRO).
Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions).
Timely made to reduce excess contributions.
Timely made to reduce excess employee or matching employer contributions.
Timely made to reduce excess elective deferrals.
Made because of an IRS levy on the plan., or
Made on account of certain
disasters for which IRS relief has been granted.
DAYDREAMER is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-17-2010, 12:45 PM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
Do a search of the subject on the forum and you should see many threads where this has been discussed.
__________________
Numbers is hard
REWahoo is offline   Reply With Quote
Old 12-17-2010, 12:50 PM   #3
Recycles dryer sheets
 
Join Date: Mar 2008
Posts: 413
I did a search before I posted this. The only thing I could find was information regarding Substantial Equal Periodic Payments or 72T Discussions.

My post is different.
DAYDREAMER is offline   Reply With Quote
Old 12-17-2010, 12:57 PM   #4
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
Quote:
Originally Posted by DAYDREAMER View Post
I did a search before I posted this. The only thing I could find was information regarding Substantial Equal Periodic Payments or 72T Discussions.

My post is different.
Here are a couple....

http://www.early-retirement.org/foru...5-a-24254.html
http://www.early-retirement.org/foru...lty-15888.html
__________________
Numbers is hard
REWahoo is offline   Reply With Quote
Old 12-17-2010, 01:10 PM   #5
Recycles dryer sheets
 
Join Date: Mar 2008
Posts: 413
Yup, that's exactly what my post is about. I need to learn how to use the search tool more effectively. Thank you!!!
DAYDREAMER is offline   Reply With Quote
Old 12-17-2010, 03:51 PM   #6
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
that's why i left 60% of my 401k when retired in case i needed money because any distribution from a roll over ira would have included the 10% penalty before 59 1/2. my stable value is pretty good, better than most bond funds and no nav decreasing as interest rates rise, so i never moved it out.
veremchuka is offline   Reply With Quote
Old 12-17-2010, 04:00 PM   #7
Full time employment: Posting here.
fisherman's Avatar
 
Join Date: Jul 2007
Posts: 500
Quote:
Originally Posted by DAYDREAMER View Post
Here is a tax loophole I was not aware of.

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.
.

This is the kicker as you have to work till the year you turn 55 and then leave to do this. If you leave before 55 it does not apply.
__________________
Worked the plan and now living the Dream!
fisherman is offline   Reply With Quote
Old 12-17-2010, 04:08 PM   #8
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
Quote:
Originally Posted by fisherman View Post
This is the kicker as you have to work till 55 and then leave to do this. If you leave before 55 it does not apply.
Almost. The rule actually allows you to leave "during the calendar year you turn 55", meaning you could leave on Jan 1 and meet the requirement provided you turned 55 on or before Dec 31 of that same calendar year.

And Martha pointed out one other potential hurdle:
Quote:
Originally Posted by Martha View Post
However, the employer doesn't have to allow you to spread out the withdrawls and might make you take the amount you want to withdraw all at once. This can lead to a big tax bill.
__________________
Numbers is hard
REWahoo is offline   Reply With Quote
Old 12-17-2010, 04:50 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 13,202
Quote:
Originally Posted by veremchuka View Post
that's why i left 60% of my 401k when retired in case i needed money because any distribution from a roll over ira would have included the 10% penalty before 59 1/2. my stable value is pretty good, better than most bond funds and no nav decreasing as interest rates rise, so i never moved it out.
Can't you do a 72T out of an IRA? Haven't looked at doing that myself since I have plenty of non-retirement account funds to use, and (I think) I'd be better of doing partial conversions of my TIRA to Roth rather than withdrawing. Should be plenty of hits if you search the ER forums on 72T, or just google it and look at reputable sites.
RunningBum is offline   Reply With Quote
Old 12-17-2010, 06:28 PM   #10
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 479
I think I read that not all 401k plans/employers allow this.
JohnDoe is offline   Reply With Quote
Old 12-17-2010, 06:48 PM   #11
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,228
Quote:
Originally Posted by DAYDREAMER View Post
Yup, that's exactly what my post is about. I need to learn how to use the search tool more effectively. Thank you!!!
Searching here can be hit or miss, I find that the Google search generally works better than the forum search tool. Anyway, it never hurts to bring this benefit up again as it hasn't been discussed in a while.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Old 12-17-2010, 06:55 PM   #12
Thinks s/he gets paid by the post
zinger1457's Avatar
 
Join Date: Jul 2007
Posts: 3,222
Quote:
Originally Posted by RunningBum View Post
Can't you do a 72T out of an IRA? Haven't looked at doing that myself since I have plenty of non-retirement account funds to use, and (I think) I'd be better of doing partial conversions of my TIRA to Roth rather than withdrawing. Should be plenty of hits if you search the ER forums on 72T, or just google it and look at reputable sites.
Yes you can do a 72T from an IRA before 59.5 but your withdrawals options are limited and once you start you have to continue until you reach 59.5. There's a lot of planning that needs to take place when setting up a 72T, if you're not careful in your calculations you could be stuck paying some early withdrawal and interest penalties.
zinger1457 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Clarification of Ally Early withdrawal penalty (help please) floatingdoc FIRE and Money 1 03-13-2010 06:50 AM
CD Ladders--why not go long and maybe pay a withdrawal penalty samclem FIRE and Money 39 11-18-2009 09:14 AM
Early withdrawal penalty for Roth 401k summer2007 FIRE and Money 7 04-21-2009 04:44 PM
Penalty for early withdrawal UncleHoney FIRE and Money 7 06-18-2008 05:25 PM
between 55 and 59 and the 10% early withdrawal penalty albundyz FIRE and Money 23 10-12-2007 06:38 AM

» Quick Links

 
All times are GMT -6. The time now is 11:18 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.