Early withdrawal from self-employed 401(k)

[Fred123]

If you have established a self-employed 401(k), and you are over 55 (but under 59 1/2), does anyone know if it is possible to make an early withdrawal without a penalty? I know that if you are an employee of a company and the company lays you off under these conditions, then you can do this. Would I have to fire myself (i.e. close the business)?

I'm not actually planning on doing this, but just speculating.

Thanks!

 

[Animorph]

I assume it might be in all those papers you and I signed to start and maintain the account. You might be able to find the right checkboxes on those forms to do what you want and fill them in, since most of the forms had to be filled in and available on site but never had to be sent anywhere.

 

[Dwhit]

As I understand it, you have to retire and not go back to work for the company to get the money early from the 401k penalty free.

 

[pb4uski]

My understanding is that not all 401k plans allow penalty free withdrawals for people severing service between 55 and 59 1/2. Some do and some don't but it would be in the plan documents.

Where applicable, it applies to employees who leave the company after turning 55 (quits, layoff, retirement, etc) so why one left isn't relevant -at least in the case of my plan - YMMV.

In your case, it would be best to check with your 401k administrator to see how you plan was set up and whether it can be amended to include that if you wish to do so.

 

[perrytime]

I specifically ask Fidelity this when I set up my self employed 401k a couple years ago, as I recall, I didn't get a clear answer, if I remember right, they thought it was a IRS issue, I could withdraw the $, but Fidelidy wasn't the one I had to convince it was penelty free.

 

[perrytime]

http://www.early-retirement.org/forums/f28/solo-401-k-withdrawals-at-55-a-54660.html

 

[heeyy_joe]

Call the IRS and ask them. Call again and ask. And again. When you get the same answer three times then call a tax attorney. Or, just call a tax attorney.

 

[pb4uski]

See page 34 of IRS Publication 575.

The tax does not apply to distributions that are: ...From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55

I would ask Fidelity that if you separate from service after age 55 and take a withdrawal how they would report it to the IRS in Box 7 of the 1099-R. If they say it would be a 2 (Early distribution, exception applies) then you should be all set. If they say 1 (Early distribution, no known exception) then you would probably be taking on some tax risk in reporting it as penalty-free.

You can refer them to the table on page 15 of the IRS Instructions for Forms 1099-R and 5498.