401K periodic withdrawals after age 55

L1: 401K periodic withdrawals after age 55Hi,
I separated from employment 9/06 – over age 55(turned 57 in 12/06). Company 401k plan allows forperiodic (?)withdrawals. Beside the periodic withdrawals, the PLAN allows for a once per year additional withdrawal. Are the periodic withdrawals considered part of a SEPP plan?Representative says can take any amount (not based on any interest rate like regular SEPP), but once set up must be same amount, plus can take one add”l withdrawal per calendar year. Is this once per year extra withdrawal free of the 10% penalty as well?
Representative said can stop the periodic withdrawal at any time & make complete withdrawal orrolloverthe remaining funds (So there is no 5 year period for this program).I plan to do this for only 2-1/2 years, (will be 59-1/2 then) & rollover to an IRA (for better investment choices)and make withdrawals only as necessary. Does this info sound correct?
Also, I’m a PA resident and I”ve seen other info on this site about PA STATE TAX – Am I right that all withdrawals from this 401K up to my contributionsare PA State Tax free as well & then after 59.5 NotTaxed at all?
Any input would be appreciated. Plan to start withdrawals early January (around 5th or 8th of the month) & take monthly distributions. Will use the once yearly withdrawal only if additional money needed along the way.
Main questions: (1). The once per year add”l withdrawal – is there a 10% Penalty? (2) Can I withdrawal any amount for the monthly withdrawals (in other words, not based on any life expectancy or 120% Mid-term rate)? & (3) Specific to PA State Tax – are the withdrawals up to my contributions (over the years) PA State Tax Free?
Thanks for any input.
meb242006-12-27 12:49, By: meb24, IP: [71.230.92.4]

L2: 401K periodic withdrawals after age 55Hello Meb24:
Your situation is quite simple. Since you separated from your employment at age 56… which is at or after attained age 55 … then the 10% early withdrawal penalty does not apply to withdrawals from your 401(k) … PERIOD!
Your plan to leave the funds in the K-plan until after your actual age 59 1/2 and then do the rollover is a sound plan. Since your company allows monthly periodic distributions and a once per year lump sum withdrawal, you have a good plan. Pay the tax but don”t worry about any early withdrawal penalties.
Good luck.
Jim
PS: As to the PA resident question … sorry but I don”t have a clue.2006-12-27 13:02, By: Jim, IP: [70.184.2.72]

L2: 401K periodic withdrawals after age 55Thank Jim, That”s what I suspected, but it”s always nice to make sure.
Therefore, the 401K administrator should code both types of withdrawals as a “1” — “Qualified retirement plan distributions if you separted from service in or after the year you reach age 55″. The representative mentioned something about getting two 1099”s (1 for periodic withdrawals & 1 for the yearly withdrawal) that”s sort of what concerned me. Don”t know why there wouldn”t be just one 1099 since both withdrawals are after separation from employment & over age 55. I guess that”s their policy – just seems more complicated to me. I”ll proceed with my plan in the next week or so.
Thanks for your response.
meb242006-12-27 13:35, By: meb24, IP: [71.230.92.4]

L2: 401K periodic withdrawals after age 55Two 1099-R”s seems a little strange, but it could be their tracking system just works that way. As long as you get the normal distribution code then let them send two forms. If you do your own taxes, just be sure to enter both into the program so you account for all of the forms.
Jim2006-12-27 13:51, By: Jim, IP: [70.184.2.72]

L2: 401K periodic withdrawals after age 55That must have been a typo – the 1099R coding from the plan administrator should be “2”, not 1. 2 is the exception code for separation at 55, and tells the IRS that there is no early distribution penalty. The company knows your age and when you separated, therefore there is no reason for them not to provide the 2 code. This is entirely different than the reluctance custodians have to provide the 2 code on a SEPP. Your plan is not a SEPP even though the plan refers to periodic payments.
If you have any after tax contributions in the plan, they will either come out pro rata with the pre tax, or if the plan separately accounts for pre 1987 after tax contributions, you can ask to have them distributed separately.
Sorry, cannot help on the PA question either. All I know is that they do have special retirement plan taxation rules there.2006-12-27 21:00, By: Alan S., IP: [24.116.66.98]

L2: 401K periodic withdrawals after age 55Alan S,
I”m actually not sure which code the administrator said, but did say 2 1099R”s, but only if I make the add”l allowable once per year withdrawal. I may be confused with which code is the exception & which is the one where I will have to complete a 5329 to claim the exception to 10% penalty.
The administrator did not call it a SEPP Plan, but a periodic withdrawal series of payments (similar concept, but not all the restrictions). I think this will work out well for my needs over the next 2-1/2 years – then I”ll figure out my next course of action. Hope to get a small (few hours/week) part-time job so I will not deplete the 401K too quickly.
By the way, I took the after-tax money with my one withdrawal for 2006 & the corresponding pre-taxed money was rolled over into an IRA. Otherwise, you”re right it would have been pro-rata & much too confusing for the lay person like me to sort out. Now I will just withdrawal from all pre-tax dollars & know I owe regular taxes each year on the total withdrawal.
Thanks for your input.
meb242006-12-28 07:25, By: meb24, IP: [71.230.92.4]

L2: Changing frequency of distributionOK. Now you haver really confused things with the last paragraph …
By the way, I took the after-tax money with my one withdrawal for 2006 & the corresponding pre-taxed money was rolled over into an IRA. Otherwise, you”re right it would have been pro-rata & much too confusing for the lay person like me to sort out. Now I will just withdrawal from all pre-tax dollars & know I owe regular taxes each year on the total withdrawal.
Did you rollover the balance of your K-plan to the IRA or part of it? Do you have any money left in your K-plan and is it all pre-tax dollars? If you did an IRA Rollover of your K-plan, then you lose the age 55, penalty-free withdrawal option, and you must follow IRA rules and initiate a SEPP Plan.
Please clarify.
Jim2006-12-28 07:50, By: Jim, IP: [70.184.2.72]

L2: 401K periodic withdrawals after age 55Jim,
I made my once per year, after age 55 & separated from employment, withdrawal in early 12/06.The withdrawal consisted of all my after-tax money & the accumulation (not sure of the right terminology) that matched the after-tax money. I kept the after-tax money & rolled the accumulation money into a separate IRA (same Fund Group, but out of the 401K account). Now I have an IRA & still have remaining funds in the 401K. It is the 401K remaining funds where the monthly withdrawals will come over the next 2 to 3 years. I don”t plan to touch the rolled-over IRA until after 59-1/2 — (hopefully much later).
Hope I”ve clarified the situation & hope what I”ve already done is okay with IRS rules. My understanding is none of the withdrawal made in early December-2006 will be taxable. Let me know if you think there”s a problem with this set up.
meb242006-12-28 08:37, By: meb24, IP: [71.230.92.4]

L2: 401K periodic withdrawals after age 55Thank you for the clarification. It looks good now.
Jim2006-12-28 09:14, By: Jim, IP: [70.184.2.72]

L2: 401K periodic withdrawals after age 55Another question for the experts:
The withdrawal I took early 12/06 – Rec”d check for after-tax contributions & rolled over to an IRA the earnings on the after-tax contributions. I see ontheir website the after-tax contribution amount is coded as a “1” and the earnings rolled to the IRAis coded”G”.Do I just list the total amount distributed in 15a &zero in 15b, or do I just ignore the amount of the after-tax contribution & list just the rollover amount in 15a &zero in 15b. Where do these things get listed on 1040??
Thanks, meb242007-01-08 16:45, By: meb24, IP: [71.230.92.4]