401k withdrawals at age 55 w/o penalty

[Calissidy]

I heard that if you retire in the year in which you turn 55 or older you will be able to withdraw from your 401k without the 10% penalty.
But then someone told me that that was just a one time rule, i.e. that you would be able to withdraw a lump sum one time only instead of taking several disbursements over a period of time.
I plan on retiring at the age of 56. How can I withdraw enough money from my 401k to hold me until age 59 1/2 without having to declare all of that money as income for one single year?

 

[malakito]

That someone who told you is most likely wrong. I believe it generally depends on what your company (or rather, your 401k adminisrator) is willing to do, because it would be them who would be administering your withdrawals for you. I think most reasonable companies should allow periodic payments on a monthly or quarterly basis.

Can you talk to your 401k administrator?

malakito.

 

[Calissidy]

malakito: My 401k administrator says that we have to take all of our money with us when we leave and roll it over into another qualified plan on our own. They want to keep it simple for themselves.

 

[John Galt]

Calissidy.........re. "keeping it simple", I don't blame them.

JG

 

[Calissidy]

Aha . . . I've snagged the famous John Galt!
John, you sound like a plan administrator yourself.
Any advice for Calissidy?

 

[John Galt]

Money is like manure, of little use unless it is spread
around.

JG

 

[Calissidy]

Ha! Guess I asked for that, John.
Don't mean to be so serious, but as far as ER is concerned, I'm at 81 days and counting . . . and just a little nervous.

 

[John Galt]

Well, I was nervous too. I think most people would be.
Even with my supersized ego, I suffered some
angst until the dust settled. Then it became quite a
delightful experience, which has continued. True, I have had many many surprises but none of them made me doubt the wisdom of dropping out as I did.

Good luck!

JG

 

[Martha]

malakito: My 401k administrator says that we have to take all of our money with us when we leave and roll it over into another qualified plan on our own. They want to keep it simple for themselves.

If you have more than $5000 in your 401(k), your employer cannot make you take the money out or roll it over into another plan. You can keep it there if you want.

As far as the age 55 rule, I believe there is no penalty for distributions made to an employee after leaving employment if the employee turns 55 that year. 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.

One option to look at is rolling over into an IRA and then taking early withdrawls under the "substantially equal periodic payments rule" where you take out an equal amount each year for at least 5 years.

Check with a good tax advisor before making a decision.

 

[azanon]

Perhaps you talked with a Federal employee.

A federal employee can withdraw their TSP (a pseudo 401(k)) as early as age 55, if they retire with 30 years of service, penality free.  

Of course they'll have to pay taxes on contribution withdrawls since contributions haven't been taxed yet.