Hit my "one year left" date on Friday.

[OK EE]

By this time next year I will be retired. It's wild to think about. I plan on giving notice early in January and give the company 3 months if they want it.

The timing coincides with my turning 55 to allow rule55 should I need it. It's a smallish company, and I can't find anything in the summary plan about partial withdrawals (the rule55 friendly withdrawal strategy). Since I'm not telling anyone except close friends that are not connected to my employer about our plans, how would I go about checking whether it's allowed? I obviously can't go to my HR department. They would think something is up. My administrator (Empower) seems clueless about it. Any thoughts?

Anyway I wanted to tell someone so I figured this forum would be ideal!

 

[Al18]

Congrats. If your 401K is handled by a large broker, you may want to ask them about withdrawals. If you don't get a clear answer, you may want to adjust your finances now, like reducing 401K contributions and saving more into a taxable brokerage account so you'll have a workable retirement spending plan to get you to age 59 1/2 without accessing your 401K.

 

[engineernerd]

I agree that you can't count on the Rule of 55 without actually checking whether your 401(K) allows it. Maybe it's worth looking into Section 72(t) withdrawals from an IRA? Substantially equal periodic payments | Internal Revenue Service

A 401(K) can be rolled over into a self-directed rollover IRA when you leave your job, but apparently some plans make this an all-or-nothing proposition while others allow you to keep the account and only do a partial rollover. To me, it looks like a good idea to limit the size of the IRA you use for 72(t) payments so you can retain spending and investing flexibility with the rest of your money, but this means you are once again stuck needing to find out more about the rules governing your 401(k). Or you could plan to roll it all over and then split the rollover IRA into two rollover IRAs, if that's acceptable to you.

BTW, congrats on your upcoming retirement!

 

[TheWizard]

I'm just a bit puzzled why you feel you can't ask your HR people about this.
Back when I was employed, our HR department was quite accessible for things like this.
Alternately, the rep for our 403(b) plan came in once a month and we could make an appointment with him for more detailed questions...

 

[OK EE]

I'm just a bit puzzled why you feel you can't ask your HR people about this.
Back when I was employed, our HR department was quite accessible for things like this.
Alternately, the rep for our 403(b) plan came in once a month and we could make an appointment with him for more detailed questions...

My employer doesn't know about my plans to retire. Asking about rule55 would raise eyebrows.

 

[TheWizard]

My employer doesn't know about my plans to retire. Asking about rule55 would raise eyebrows.

MOST people retire at some point.
Not sure why that would be an issue, assuming you're not a low performer, an embezzler or similar...

 

[tulak]

What you need to look at is your 401k plan documentation and the rules on withdrawals after separation of service. This will tell you if you can make multiple/periodic withdrawals or not. There is nothing 'rule of 55' specific in your 401k plan. That part is the IRS allowing you to wave the 10% penalty pre-59.5 withdrawals. The withdrawals can be periodic or all at once, but they have to be supported by your plan.

I did the same for my plan last year and I can only make one withdrawal after separation of service, however, I can split this withdrawal into two. So I can take part of it as a pre-59.5 withdrawal and the other roll-over into an IRA. This will likely give me 1-2 years of income, helping me get to 59.5, but I'll likely also start a 72t for income.

In your case, review the 401k plan documentation. That's neutral enough and shouldn't raise any suspicions regarding retirement.

Also, a minor note, but you can start these withdrawals in the year you turn 55. This is a nice benefit if you have a late in the year birthday, effectively allowing you to retire when you're 54.

Congrats!

 

[Koolau]

My employer doesn't know about my plans to retire. Asking about rule55 would raise eyebrows.

Most of the things we worry about never happen. If they do, the consequences are unlikely to be as bad as we thought. SO what would happen if HR "snitched" that you'd asked about the 55 rule?

Is your j*b on the chopping block? Could they withhold a bonus? Is it that big a deal if they find out that you are examining options?? Just thinking out loud here.

 

[Montecfo]

Do you have any if the documentation from when you enrolled? Ours covered withdrawals at our also smallish company. That should give you some clues.

Is there a portal for the plan? If so it may include plan documents.

Otherwise if not willing to discuss with HR or try a different person with the the plan administrator (someone there has to know) you are stuck.

 

[Quattro73]

MOST people retire at some point.
Not sure why that would be an issue, assuming you're not a low performer, an embezzler or similar...

Or a smaller company and a high performer and management will freak out and drive you insane about staying.

 

[38Chevy454]

I mostly viewed HR as helpful, but also always being their main role is keep the company out of trouble; CYA for the company. They are not on employee's side. Being you said smaller company, probably best to not ask HR until you give notice next year. As suggested, if you can't do the rule of 55, there is the 72t option that can provide some access to the 401k type funds before 59.5 age. Just be aware of the 72t limitations, main one being that you have to do it for at least 5 years or until 59.5, whichever is longer.

 

[mh]

Congrats. If your 401K is handled by a large broker, you may want to ask them about withdrawals. If you don't get a clear answer, you may want to adjust your finances now, like reducing 401K contributions and saving more into a taxable brokerage account so you'll have a workable retirement spending plan to get you to age 59 1/2 without accessing your 401K.

yeah if you are retiring in a year you would likely want to put emphasis on having more cash available (if you aren't doing that already) for mitigating your sequence of returns risk at retirement time. which is also another reason not to make known your retirement until absolutely neccesary (IMO) . it always gives you the option to stay a bit longer on the cash income/buildup train if the economic environment takes a dip (which one can certainly envision at the moment)

 

[ransil]

mine was with Enpower and had rule55, they had no issues telling me I had it.

I did not call to specifically to ask about rule55 but was on a call for them to "help" with my investments , they wanted me to switch to a managed account.

 

[pjigar]

Congratulations. Check your 401(k) plan document. It should spell out if the plan allows withdrawal after 55. Also check if it allows partial withdrawals. Full withdrawal will be less useful (big tax bill) for its intended purpose. If you contributed to Roth 401(k) then there may be additional considerations for a 5 year window.

Example section from a 401(k) plan summary:

 

[Al18]

The fourth bullet point listed above says yes you can pull your money out penalty free after age 55, but is very vague about how this happens. That's why I recommend contacting your broker representative. Not even though your 401K withdrawal is allowed, there is an IRS rule that says 20% federal withholding is required on 401K's. If you plan to be in the 12% tax bracket when retiring, this means you will probably take some of your retirement expenses from your 401K, some from your taxable brokerage, bank CD's, etc.

 

[OK EE]

Most of the things we worry about never happen. If they do, the consequences are unlikely to be as bad as we thought. SO what would happen if HR "snitched" that you'd asked about the 55 rule?

Is your j*b on the chopping block? Could they withhold a bonus? Is it that big a deal if they find out that you are examining options?? Just thinking out loud here.

No my job would be fine. Bonus and raises would definitely be in danger of being lower. I get bonuses quarterly so the delta could be 10K+.

 

[MarieIG]

You should be able to review your plan document and locate that information yourself.

 

[OK EE]

I managed to find a summary plan description. The partial distributions sure looks like rule55 friendly.

 

[Al18]

(Corrected)

The plan would have to state distributions you would receive distributions at age 55 or later are allowed. Yours does not - assume 10% penalty plus 20% taxes prior to age (62).

 

[beanctr88]

I'm retiring on July 31, and this was a question I had myself. After some research, I determined that for separated participants my plan does not allow partial distributions. Our choices are either to leave our money in the plan, a full distribution of the entire balance, or we can purchase an annuity if we want periodic payments. I'm going to leave my money in the plan for a few years while I do some Roth conversions from my and my wife's Contributory IRAs, then I'll roll it to an IRA. Fortunately, I do not need these funds for quite some time, but I did want to know what my options were just in case.

 

[OK EE]

(Corrected)

The plan would have to state distributions you would receive distributions at age 55 or later are allowed. Yours does not - assume 10% penalty plus 20% taxes prior to age (62).

I assume if I did this that money would be refunded at tax time. Not ideal but not the end of the world either. Of course taxes would have to be paid regardless on this withdrawal so the 20% is just a prepay instead of a check you have to write April 15th.

I'm retiring on July 31, and this was a question I had myself. After some research, I determined that for separated participants my plan does not allow partial distributions. Our choices are either to leave our money in the plan, a full distribution of the entire balance, or we can purchase an annuity if we want periodic payments. I'm going to leave my money in the plan for a few years while I do some Roth conversions from my and my wife's Contributory IRAs, then I'll roll it to an IRA. Fortunately, I do not need these funds for quite some time, but I did want to know what my options were just in case.

That's the boat I'm in. I really don't think I need the money before 59.5, but it's nice to know you have the option. (FWIW, around 25% of our total liquid lives in a brokerage account. If we burn through that in 5 years we have other problems).

 

[Al18]

Brokerage account is an excellent place to withdraw funds from in early retirement. For married filing joint, you can have $98,900 in long-term gains per year and pay NO Federal Tax. I've been funding my early retirement by selling stock from my brokerage account, cashing in some CD's and my wife's pension.

 

[retbjwsjfl]

By this time next year I will be retired. It's wild to think about. I plan on giving notice early in January and give the company 3 months if they want it.

The timing coincides with my turning 55 to allow rule55 should I need it. It's a smallish company, and I can't find anything in the summary plan about partial withdrawals (the rule55 friendly withdrawal strategy). Since I'm not telling anyone except close friends that are not connected to my employer about our plans, how would I go about checking whether it's allowed? I obviously can't go to my HR department. They would think something is up. My administrator (Empower) seems clueless about it. Any thoughts?

Anyway I wanted to tell someone so I figured this forum would be ideal!

I broke all the rules and gave my company 2 years notice of my pending retirement next April (I will be 56 when I depart). This was by design, as I'm the only one in my company with a very specific skill set and it will take them time to either higher, or identify a replacement internally to go through the requisite training to be qualified for the role. What have they done? Squandered it. The company is in total denial and disbelief, I'm not being taken seriously. I can't wait to hand over my lap top to IT and walk out the door. 11 Months, 11 Days, 7 hours.... But hey, who is counting!? Good luck!

 

[Koolau]

I broke all the rules and gave my company 2 years notice of my pending retirement next April (I will be 56 when I depart). This was by design, as I'm the only one in my company with a very specific skill set and it will take them time to either higher, or identify a replacement internally to go through the requisite training to be qualified for the role. What have they done? Squandered it. The company is in total denial and disbelief, I'm not being taken seriously. I can't wait to hand over my lap top to IT and walk out the door. 11 Months, 11 Days, 7 hours.... But hey, who is counting!? Good luck!

I'm sure they'll come begging you to stay. No need to feel so much as a twinge of guilt. You gave them 2 years!!

Don't forget to tell us when you pull the plug. We'll celebrate with you.

 

[Sorcerer]

What's HR stand for? I assume it's human resources. Our company changed the name of HR to People and Culture. I guess the term human offended someone.

Im in the camp of tell HR as little as possible. Their best interest is protecting the company, not you. We have had people walked almost immediately after they gave notice. I'm guessing those people were a pita or had access to sensitive info. When or if my time ever comes, they will get a 7 hour notice of my departure.