Using Age 55 Rule to get from 55 to 59.5

[gauss]

If you have 4 more years until retirement, it is not clear to me why you don't start doing yearly Roth conversions now?

You would still have to come up with after-tax money or rule of 55 for 1st years expenses, but after that, you would be able to withdraw the conversion proceeds tax and penalty free (assuming it has been 5 years since each conversion).

The one wrench in this is that you would need/want to come up with the money each year going forward to pay the incremental taxes on your Roth conversions with after-tax funds.

-gauss

 

[pb4uski]

Since they are both now working the marginal tax cost of Roth conversions is probably pretty steep... in fact it might even be more than just paying 10% penalty and viewing it as part of the cost of freedom.... for example if they are currently in the 28% bracket and will be in the 15% bracket in retirement.

 

[Swordplay Charlie]

many think that automatically they get to draw out what they want ,either under the age 55 rule if the plan allows periodic payments or if they 72t but that is not the case .

so how is it determined how much one can withdraw from a 401k using the age 55 rule?

 

[pb4uski]

Assuming no constraints by the 401k plan you can withdraw as much as you are willing to pay taxes on.

 

[Al18]

so how is it determined how much one can withdraw from a 401k using the age 55 rule?

Google 72t calculator - I use the one at bankrate.com

 

[43210]

Assuming no constraints by the 401k plan you can withdraw as much as you are willing to pay taxes on.

So let me see if I understand this. As far as the tax rules that say what the taxes are, and whether or not you have the 10% penalty, you can withdraw any amount, any time (after separation).

But the 401/403/457 rules are the rules that may (or may not) restrict what/when/how you can withdraw. It's (heavily) plan dependent.

For planning future ER, while I definitely need to know what the IRS says, I REALLY need to know what my plans say.

Do I have it right?

 

[Swordplay Charlie]

So let me see if I understand this. As far as the tax rules that say what the taxes are, and whether or not you have the 10% penalty, you can withdraw any amount, any time (after separation).

But the 401/403/457 rules are the rules that may (or may not) restrict what/when/how you can withdraw. It's (heavily) plan dependent.

For planning future ER, while I definitely need to know what the IRS says, I REALLY need to know what my plans say.

Do I have it right?

That's the way I see it from all the reading I've done on the subject. I have never seen anything about a formula like a SEPP has or a limit on the amount you can withdraw from a 401k using the age 55 rule. As long as you follow the IRS rules and the SPD work requirements work for your situation everything should be fine. I always question when I read a blanket statement saying otherwise because I figure I missed something.

 

[Swordplay Charlie]

Google 72t calculator - I use the one at bankrate.com

Why would I use a 72t calc if using the age 55 rule? I shouldn't need to.

 

[bobandsherry]

Google 72t calculator - I use the one at bankrate.com

Don't need to calculate if you are 55+ at time of separation from company.

Retirement Topics - Exceptions to Tax on Early Distributions

 

[bobandsherry]

So let me see if I understand this. As far as the tax rules that say what the taxes are, and whether or not you have the 10% penalty, you can withdraw any amount, any time (after separation).

But the 401/403/457 rules are the rules that may (or may not) restrict what/when/how you can withdraw. It's (heavily) plan dependent.

For planning future ER, while I definitely need to know what the IRS says, I REALLY need to know what my plans say.

Do I have it right?

Yep, in that situation myself now.

 

[Swordplay Charlie]

I believe the 20% Federal Tax withholding for all 401K withdrawals is standard practice, and applies no matter what your age is. Note this is only withholding. If you'll be in the 15% tax bracket during retirement, there's a good chance you'll get half of what was withheld, refunded when you file your tax return.

The 20% withholding was kind of a shocker when I heard that from my provider.

 

[pb4uski]

So let me see if I understand this. As far as the tax rules that say what the taxes are, and whether or not you have the 10% penalty, you can withdraw any amount, any time (after separation).

But the 401/403/457 rules are the rules that may (or may not) restrict what/when/how you can withdraw. It's (heavily) plan dependent.

For planning future ER, while I definitely need to know what the IRS says, I REALLY need to know what my plans say.

Do I have it right?

Yes, you have it right. Assuming that you qualify for the rule of 55 you can take the whole thing out if you are willing to pay the taxes.

 

[43210]

Apparently what I need to get hold of is the "summary plan description (SPD)". Where do I find it? Who (generally) should I ask for such a thing?

 

[Backpacker]

Apparently what I need to get hold of is the "summary plan description (SPD)". Where do I find it? Who (generally) should I ask for such a thing?

Most times your HR department, or directly to investment company that handles the account. If your Co. is too small to have an internal HR department they may have the financial help with this.

 

[zinger1457]

Not sure if a 401K offers the same choices but with my federal TSP plan depending on the type of withdrawal taken you do have the option of waiving the withholding or selecting an amount you want taken out. I have mine setup for monthly withdrawals and no taxes are taken out.

 

[bobandsherry]

Apparently what I need to get hold of is the "summary plan description (SPD)". Where do I find it? Who (generally) should I ask for such a thing?

For both of our plans (mine and wife's), we can login to our 401K account online and find this and other related documents.

 

[pb4uski]

^^^^ That is very typical... especially for 401k accouts that offer online access.

 

[latexman]

The 401(k) "summary plan description (SPD)" for the 2 megacorps I worked for are either on the company intranet or Fido's website.

 

[Sunset]

So let me see if I understand this. As far as the tax rules that say what the taxes are, and whether or not you have the 10% penalty, you can withdraw any amount, any time (after separation).

But the 401/403/457 rules are the rules that may (or may not) restrict what/when/how you can withdraw. It's (heavily) plan dependent.

For planning future ER, while I definitely need to know what the IRS says, I REALLY need to know what my plans say.

Do I have it right?

Yep, the SPD of the 401K rules, and is usually more restrictive than what the IRS allows, and can change at anytime !!

 

[MRG]

Mine was on the custodians web site. Interesting when I talked to the benefits person I was mis-informed. They said 59.5 or pay a penalty.

Under hardship withdrawal there was "55 or older and separated from employment" statement. Took a day for them to huddle and get it straight.

 

[Swordplay Charlie]

When I talked to one benefits person he told me that funds would be sold pro rata to cover the amount of withdrawal, another time the person told me that I could specify the funds I wanted to sell. Asked if I could get a copy of the funds request so I could see which rep was right, but alas, that wasn't going to happen.

 

[bobandsherry]

When I talked to one benefits person he told me that funds would be sold pro rata to cover the amount of withdrawal, another time the person told me that I could specify the funds I wanted to sell. Asked if I could get a copy of the funds request so I could see which rep was right, but alas, that wasn't going to happen.

Worst case, once funds are withdrawn go in and rebalance your funds are you want them to be.

 

[jazz4cash]

When I talked to one benefits person he told me that funds would be sold pro rata to cover the amount of withdrawal, another time the person told me that I could specify the funds I wanted to sell. Asked if I could get a copy of the funds request so I could see which rep was right, but alas, that wasn't going to happen.

This is why it is crucial to actually read what's in the SPD. I've had the same thing happen because the custodians benefit person is dealing with many plans and sometime the details vary from one employer to another. They'll give you a pat answer without checking so I sometimes need to have a copy of the SPD handy and direct them to the section that permits funds specific transactions, for example. Happens with other features too. Our custodian is Fido so not a small time outfit.

 

[43210]

When I talked to one benefits person he told me that funds would be sold pro rata to cover the amount of withdrawal, another time the person told me that I could specify the funds I wanted to sell. Asked if I could get a copy of the funds request so I could see which rep was right, but alas, that wasn't going to happen.

This is why it is crucial to actually read what's in the SPD. I've had the same thing happen because the custodians benefit person is dealing with many plans and sometime the details vary from one employer to another. They'll give you a pat answer without checking so I sometimes need to have a copy of the SPD handy and direct them to the section that permits funds specific transactions, for example. Happens with other features too. Our custodian is Fido so not a small time outfit.

I think I found what appear to be SPDs for a couple of my plans online. They definitely do not in any way address the issue of how funds are sold, and what you can specify. They leave other questions unanswered as well. I think I need to actually talk to people at work and people at the financial institutions and see what they all say (whether consistent and/or correct or otherwise).

Worst case, once funds are withdrawn go in and rebalance your funds are you want them to be.

This doesn't work. The damage may already be done, and cannot be undone.

 

[bobandsherry]

This doesn't work. The damage may already be done, and cannot be undone.

What damage would be done?