401k ?s

L1: 401k ?sHi,
I”m confused about 401k withdrawals. I”ve tried to search this site, a very good one with tons of information, but I can”t seem to get a clear answer to my question. Here goes:
I will be 50 years young when I retire and have money in my employer”s 401k plan. Since I will not be 55 when I separate from service, will the 10% penalty always be a factor on any withdrawals made before attaining 59 1/2?
Thanks in advance for any response!2007-04-26 08:30, By: susie-q, IP: [139.76.128.68]

L2: 401k ?sGood morning Susie-Q.
The K-plan, age 55 rule is straight forward. If you retire or separate from a company with a K-plan, and you are age 55 or older during the year your retire, then distributions from the K-plan are not subject to the 10% penalty. As long as your are age 55 or older on December 31 of the year you retire or separate, then the rule applies to you. Since you will only be age 50 when you retire, then the penalty will apply to you, unless you “retier” for disability reasons which is an exception in itself.Assuming your don”t qualify for the disability exception,how do you get around the 10% penalty?
If your K-plan allows systematic withdrawals, like monthly, quarterly, etc, then you can set up a SEPP plan there. However, most will only allow a lump-sum distribution because they really only want to collect assets not distribute them. (Check with your HR Department for specific company rules.) Therefore you will probably have to transfer to an IRA Rollover account and set up a SEPP distribution plan, unless …
if you “retire” at age 50 and “rehire” with another company that will allow you to transfer the old K-plan into their K-plan, and then you work until you qualify for the age 55 exception to retire or separate.
Hope this helps.
Jim2007-04-26 09:19, By: Jim, IP: [24.252.195.14]

L2: 401k ?sThat”s almost the same question I asked in the post immediately following yours. We must”ve posted at the same time.From what I read in the article on Yahoo (which refers to this site), you can avoid the 10% early withdrawl penalty by rolling the 401k over to an IRA and then doing “substantially equal periodic payments” for 5 years or until age 59-1/2, whichever is longer.I assume this means you don”t have to remain employed until age 55. That”s the reason I posted my question.I think there”s also an issue that not all employers provide for age 55 distributions. I didn”t realize this until I read the article. So, it sounds like a person could work until 55, and then find they can”t begin taking distributions. And the pre-59-1/2 rule only applies if the money resides in the employer”s plan. Hence why I was curious if the “substantially equal periodic payments” is a way around the problem of an employer not accomodating pre-59-12 distributions. Or, a way around leaving before 55. (Or, hopefully both.).http://biz.yahoo.com/kiplinger/070416/iptc_20070411101548_id.html?.v=1&.pf=banking-budgetingMark2007-04-26 09:21, By: Mark, IP: [144.189.5.201]

L2: 401k ?sMark,
You should be allowed to get a copy of the 401k plan document at any time, and that would tell you what early payout options are allowed. If they don”t fit your “early retirement” plan, then simply do a trustee to trustee transfer of the 401k balance to a newIRA rolllover account, and from that account you can start a SEPP 72(t) plan at any age under 59 1/2, and avoid the 10% penalty if you stick to the correct withdrawal each and every year till you have gotten past age 59 1/2 and completed at least 5 years of payments. Any mistakes bring back the IRS 10% penalty for all SEPP withdrawals along with interest charges, so you need to be careful and know what you are doing. There are lots of details involved so read the posts going back about 12 months on this site to get more knowledge. The biggest problem with starting a 72t (with either the amortization or annutization method) at a young age is that you may have depleted a lot of your IRA balance by the time you get in your 60”s, especially if you have very conservative or very risky investments, or if the market takes a dive and your balance goes down along with it. KEN2007-04-26 12:29, By: Ken, IP: [151.199.44.145]

L2: 401k ?sPutting the age 55 exception in perspective, this is an IRS rule and applies to any distribution from an employer plan when you separate from that employer in the year you turn 55 or later.
The employer must make your plan assets available after you separate, but this does not help much if they don”t offer some variety of installments. If you had to take out 5 years of living expenses at 55, your tax bracket would likely be increased to the point that any benefit from avoiding the penalty would be wiped out. In that case, you would be forced to transfer the assets to an IRA and initiate a SEPP plan to avoid the penalty AND spread out the taxable income over the entire period.
If the employer DOES offer installment or periodic payments, these are technically not SEPP plans and not subject to the technical requirements of those plans, and therefore is a better way to go as long as you meet the age 55 separation requirement, because that”s the exception used to avoid penalty.
2007-04-26 15:25, By: Alan S., IP: [24.116.66.98]

L2: 401k ?sAlan:
Another reason for preferring a SEPP, in spite of the complexity of setting one up, would be if your 401k plan does not offer adequate diversification or a number of good funds in which to invest.
My former employer”s k plan had 2 excellent mutual funds and 12 so-so funds. I knew that the so-so funds would not generate the income I needed and the 2 excellent funds could not provide the diversification Ineeded.
Although this was all moot, given that my employer”s k plan only allowed for full distribution of the plan money at retirement / separation from service, I can see where this would be a valid concern for folks who have a k plan that does allow regular distributions.
Ed2007-04-27 13:20, By: Ed_B, IP: [67.170.159.37]