?401K Withdrawal if Laid off over 55

[eytonxav]

Although the early withdrawal penalty does not apply for taking 401K distribution if laid off and over 55, does anyone know what sort of withholding applies? I know it gets treated as ordinary income, but I would hope that FICA is not withheld if you are essentially retired.

Thanks,

DFW

 

[crazy connie]

Your hope is a reality.

 

[Nords]

I know it gets treated as ordinary income, but I would hope that FICA is not withheld if you are essentially retired.

FICA applies to wages but not to investment income.

But you'll still want to keep an eye on estimated taxes.

 

[Sam]

Although the early withdrawal penalty does not apply for taking 401K distribution if laid off and over 55

Laid off and over 55 are not the only requirement for avoiding the penalty.  You can do it at anytime as long as you meet the 72(t) substantially equal periodic payments requirements.

 

[cute fuzzy bunny]

'splain your situation a bit more and perhaps more help will be available. Do you need the money right now?

If not, you can roll it over to an IRA.

If you only need some of it, roll it over to an IRA and as Sam mentioned, use the IRS 72(t) SEPP provision to siphon off large chunks each year, leaving the rest tax protected.

 

[crazy connie]

If employment terminates the year you turn 55... Once you have had your 55 B'day... Then you have unlimited access to your 401K funds as far as Uncle Sam and penalties. I am looking for a McJob now to roll previous funds into, and then sever once into year I turn 55. I just do not want to wait till 59&1/2 to get to my monies... I also prefer not to play 72T as there are too many moving parts in my life yet.

 

[eytonxav]

My situation is that I am 57 and will be laid off in 2 months time, unless I find another job internally. I already have a substantial IRA from a previous job, and want to get to 59.5 without using 72t, therefore I plan to withdraw from my current 401K to cover me for a few years. If I request a withdrawal next year, I am trying to understand exactly what will be withheld. I certainly don't want them to take FICA out and then have to file a tax return to recoup.

Thx,

DFW

 

[rs0460a]

My situation is that I am 57 and will be laid off in 2 months time, unless I find another job internally. I already have a substantial IRA from a previous job, and want to get to 59.5 without using 72t, therefore I plan to withdraw from my current 401K to cover me for a few years.  If I request a withdrawal next year, I am trying to understand exactly what will be withheld.  I certainly don't want them to take FICA out and then have to file a tax return to recoup.

Thx,

DFW

You paid FICA on the earnings when you contributed to the 401K.  You don't pay it on any withdrawls (or any "profit") at the time you withdraw.  In addition, if you are in a state that does not tax retirement income (like PA), you will not pay any state tax.  As far as state tax, some states don't tax the $$$ on the way in (to the 401K) but then tax it when you take it out.

Just watch your quarterly federal tax due.  Since you are not getting a "paycheck", you will have to submit (quarterly) your estimated federal taxes.  If not, you may/will get an additional "fine" at the end of the year (when you submit your federal return).

 

[HFWR]

Assuming he's in the same DFW as me, good ol' Texas has no state income tax, just sky high property taxes...

 

[REWahoo]

Assuming he's in the same DFW as me, good ol' Texas has no state income tax, just sky high property taxes...

I saw one of those "What you can get for X dollars" home shows the other day and they profiled a really nice place in Austin where the property taxes were only $1,350...per month!

 

[Sam]

I saw one of those "What you can get for X dollars" home shows the other day and they profiled a really nice place in Austin where the property taxes were only $1,350...per month!

Will you guys PLEASE stop reminding me of Texas property tax?  I'm getting a headache! 

 

[eytonxav]

Asked the question to Fidelity today, who is the 401K keeper, and they said 20% would be withheld. Since my effective tax rate is usually lower than that, looks like uncle will get the benefit of more of my $$ for a year.

And yes, the property taxes on the McMansion suck! Time to fine a smaller hiecienda.

DFW

 

[GolferAndy]

"Asked the question to Fidelity today, who is the 401K keeper, and they said 20% would be withheld.  Since my effective tax rate is usually lower than that, looks like uncle will get the benefit of more of my $$ for a year."

I should think you would want to rollover this 401k into your IRA instead if at all possible. You've only got a couple of years to go before withdrawls can be made with no penalty. Isn't that preferable to giving Uncle Sam 20% of it now? Live on Ramen noodles for a couple of years if you have to.

 

[renferme]

Retire after 55, you can withdraw from 401k without penalty. Do not have to do a 72t.
You paid fica before putting money into the 401k, therefore, you don't pay it again.
You tell the holder of your 401k, how much money you want withheld for taxes - that's what I did, although there might be a minimum such as 10% - I've withheld a little more than that.
.