401 (k) vs IRA

L1: 401 (k) vs IRAI have two questions that I’m wrestling with now.
1. My pension is in a 401 (k) and I would like to apply rule 72(t) at age 53. Is there any advantage to converting my 401(k) into an IRA if I don’t intend to contribute any further funds into the account?
2. Is there any way I can convince my pension administrator to put a 2 in block 7 of the 1099-R. I’m told that they will put a 1 in block 7 andI will have to fill out an additional tax form 5329.
Your insights will be most helpful.2005-08-20 12:53, By: Jim, IP: [166.87.255.133]

L2: 401 (k) vs IRAHello Jim:
1. No. If anything, there maybe advantages to leaving your assets in the 401(k) plan as there may be employer subsidies and / or investments that are otherwise unavailable or cost more.
2. No. Trustees are a breed apart which are supposed to have your best interests at heart but most often do not.
TheBadger
wjstecker@wispertel.net
2005-08-20 17:04, By: TheBadger, IP: [66.250.23.21]

L2: 401 (k) vs IRAHi Jim. Gosh I like that name!
It sounds like you are still working and intend to continue for some time, but you would like to start SEPP with your current employer’s 401(k) plan. I think the first question you need answered concerns what flexibility you may or may not have with your K-plan.
Generally you can’t move any part or all of a K-plan to an IRA unless your employer’s plan documents allow such actions. Likewise, distributions before retirement or separation from service falls into this category. So unless the plan allows “in-service” partial or full transfers to an IRA or partial distributions, the rest of your questions are probably moot. Check with your HR office and ask for a copy of the plan document for your review. They probably don’t know what it says so don’t waste time asking them the questions but do your own research.I agree with TheBadger’s comments,but let me add an additional thought. If your are considering SEPP because your need extra funds for living expenses, try something else. If your start drawing from your retirement funds at your age, your are really stealing from your future. The more you save now the more your will have later, and that’s a really significant factor.
Good luck.
Jim2005-08-22 09:25, By: Jim, IP: [70.184.1.35]

L2: 401 (k) vs IRAThanks for the advice. After further consultations with the Vanguard Group, they will accept a Letter of Instructions that will clarify my wishes to haveearly withdrawls under rule72(t).Afterverifying my calculations, my 1099-R will have a 2 in block 7. This to me is the end game as far as avoiding any penalty.
I’ll keep my 401(k) as a source for my pension disbursements.
As Jim pointed out, at age 53 I run a risk of prematurely spending down my retirement. My stategy is to spend down my retirement funds and limit my tax liability by taking smaller monthly amountsover a longer time peroid. The monthly payments are enough tocover my expenses and I have a significant amount of after tax money in reserve.
Is this the way to go or have I missed something?2005-08-23 10:00, By: Jim, IP: [166.87.255.131]

L2: 401 (k) vs IRAJim:
Please clarify one point: Are you still working for the same company that sponsors this K-plan you are asking about?
If you are still working and you start a SEPP plan using the K-plan, and if either you or your company adds any money, then you have a bust.
Jim2005-08-23 10:57, By: Jim, IP: [70.184.1.35]

L2: 401 (k) vs IRAYes Jim, I’m still working but plan to retire in January 2006. It takes a lot of research to understand rule 72(t) as it applies to my circumstances and I’m trying tomake aninformeddecision by January.I’m grateful to you, TheBadger, and others who participate in this forum.
After 20 years of contributions into a 401(k) plus a retirement plan rollover, I’m ready to retire & draw out some funds. What could go wrong?2005-08-24 08:03, By: Jim, IP: [166.87.255.132]

L2: 401 (k) vs IRAHello Jim:
When will you turn 55?
TheBadger
2005-08-24 08:06, By: TheBadger, IP: [66.250.23.21]

L2: 401 (k) vs IRAGood morning Jim:
After 20 years of contributions into a 401(k) plus a retirement plan rollover, I’m ready to retire & draw out some funds. What could go wrong?
Your last question is scary! What could go wrong? A lot can and many times does go wrong.
While you are in your learning mode and have some time before retirement, let me suggest another resource available through this web site. Go to the home page and look to the blue buttons on the right for “IRA Advisor Newsletter.” This will take you to the Ed Slott, CPA, web site. Go to “Order” on the lower left and look for his book “The Retirement Savings Time Bomb…” and order it. Chapter 3, “Roll Over, Stay Put, or Withdraw?” on page 34 will address some issues I think you need to review. After reading Ed’s book along with Bill Stecker’s book and thoroughly researching this site, I think you will have a better idea how to structure your entire portfolio. Also, don’t be afraid to consult an investment professional for some ideas or to work with. I suspect you will discover that a combination of IRA rollover and utilizing you existing K-plan will work best for you. The IRA rollover is definitely better for long-term family financial planning issues.
When TheBadger asked when you will turn age 55, that addresses a special situation available for K-plans. If you retire during or after the year you turn age 55 and leave your K-plan either fully or partially intact, then your can withdraw from this plan without the 10% early withdrawal penalty. But if you retire before the year you turn age 55, and that sounds like your plan, then you lose this benefit. Also, when your do an IRA rollover, those funds come under IRA rules and age 59 1/2 becomes the magic age for no 10% penalty.
Jim2005-08-24 08:44, By: Jim, IP: [70.184.1.35]