401K withdrawals and federal taxes (any accountants out there?)

[MRG]

Quote:

Originally Posted by meierlde Let me raise a question is do they allow partial withdrawals after 59.5? If not then rolling it to an IRA makes sense, and then use the 72t rule for withdrawals if between 55 and 59.5.

My plan does. I'm learning I may be in a minority of folks with flexible, well documented plans.
MRG

[Dwhit]

I am in the same boat, retiring in a couple of weeks at 56. I am going to be withdrawing from my 401k until I hit 59 and 1/2 and can draw from my IRA. My 401k is with Principal. They also withhold the 20% Federal income tax automatically. Plus they will withhold an extra 5% for my state income tax.

Principal has it set up so I can withdraw pretty much as often as I want using their website. They will mail me the check, or I can set up direct deposit. I am planning on monthly withdrawals at present. It all seems to be very convenient, but I do wish I could set the withholding rates lower. No luck on that, however.

[Brett_Cameron]

Quote:

Originally Posted by martyb Sounds a lot like my wife's crappy plan.....

While my 401k SPD implied that pre-59.5 periodic withdrawals were not allowed, it was and is allowed and I am doing it. I had to talk to people and get some plan forms that were not made known to the casual observer. It was almost like they did not want people to take advantage of this feature.

The caveat was that I had to set up a duration over which the entire amount would be distributed. I can only change the distribution plan by taking a lump sum distribution of the remaining balance or rolling the balance over to an IRA.

What I chose was a 15 year distribution window. The periodic payments started with 1/180 of balance the first month. The next month was 1/179 of remaining balance. This series would continue until the 15 years was up and the funds were depleted at age 70.

I chose the duration to ensure I had adequate income to cover anticipated expenses until I reach 59.5. At that time I will roll the entire balance to an IRA and change the distribution plan because I do not plan to empty the fund.
YMMV!

Edited to add: I will be rolling to an IRA that has fees lower than the current T Rowe Price 0.58% fees for the funds I own in the 401k and to get a broader range of funds to choose from.

[martyb]

The person at my wife's job (medical group) told she & I in a meeting that I requested, that If she withdrew any money from her 401k before age 59 1/2, they would withhold the 10% IRS penalty. Even after I showed them the IRS reg. I don't know what else to do. We don't really want to roll it over to an IRA, because then we will also be faced with the pre-59 1/2 penalty. I just don't think they really know what they're doing. Apparently they're not used to employees checking out (retiring) before 59 1/2. Not sure what we can do.

[MRG]

Quote:

Originally Posted by martyb The person at my wife's job (medical group) told she & I in a meeting that I requested, that If she withdrew any money from her 401k before age 59 1/2, they would withhold the 10% IRS penalty. Even after I showed them the IRS reg. I don't know what else to do. We don't really want to roll it over to an IRA, because then we will also be faced with the pre-59 1/2 penalty. I just don't think they really know what they're doing. Apparently they're not used to employees checking out (retiring) before 59 1/2. Not sure what we can do.

Demand the SPD, they must provide it. Mine was staight forward, past age 55 and terminated from sevice qualified as a hardship withdrawl with no penalty. Yours may or may not depending on the SPD. If your plan doesn't allow it, you can do a rollover IRA and do a 72t.

I guess the Megacorp I worked for was knowledgeable about all the options.
MRG

[Trooper]

Quote:

Originally Posted by MRG Demand the SPD, they must provide it. Mine was staight forward, past age 55 and terminated from sevice qualified as a hardship withdrawl with no penalty. Yours may or may not depending on the SPD. If your plan doesn't allow it, you can do a rollover IRA and do a 72t. I guess the Megacorp I worked for was knowledgeable about all the options. MRG

I agree with MRG. I checked my SPD today and it allows penalty-free withdrawals between 55 and 59 1/2, if you terminate while age 55 or later.

If your wife's employer doesn't believe you then show them this IRS publication:
401(k) Resource Guide - Plan Sponsors - General Distribution Rules

In the section "Taxes on Early Distributions", under 'Exceptions', it says:
(Distributions) 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.

[Tree-dweller]

Quote:

Originally Posted by Trooper I agree with MRG. I checked my SPD today and it allows penalty-free withdrawals between 55 and 59 1/2, if you terminate while age 55 or later. If your wife's employer doesn't believe you then show them this IRS publication: 401(k) Resource Guide - Plan Sponsors - General Distribution Rules In the section "Taxes on Early Distributions", under 'Exceptions', it says: (Distributions) 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.

Likewise. I made a couple of withdrawals before 59 1/2 after retirement (age 58). No penalty, just the 20% withholding. (I too am learning I am one of the lucky ones with a well-documented plan.)

[Theduckguru]

Crazy world I guess. My 457 plan (401k for public emp) requires 20% tax. My DB has more flexiblity. So when I get to that point, I guess I'll have several dependants for my DB taxes.