401K withdrawl at 55 ?
L1: 401K withdrawl at 55 ?I am planning on retiring at 55 and have $450,000.00 in a 401K which I must take in a lump sum. I have been told to roll it into an IRA and setup a 72T withdrawal for 5 years. How much can I take out monthlyand avoid penalties.I do have some other sources of income but need to draw from this to supplement. Do I have other options for withdrawal besides a 72T ?I will also need to start paying my own health insurance if this plays into it in anyway.2010-08-15 01:52, By: FreddyL, IP: [220.127.116.11]
L2: 401K withdrawl at 55 ?Did your employer or plan administrator tell you that you had to take a lump sum distribution ?
Or did “someone” else tell you this ? If so, was it a knoledgeable professional, a broker, a neighbor/friend ?
Did you ask the companyif you could take partial distributions? Because if you can, then you would not be subject to the 10% early distribution penalty.
Is any of your 401-k in the employer company’s stock ? If so, this is known as NUA ( Net Unrealized Appreciation Employer Stock), which has a very favorable tax provision that you will lose if you roll it over into an IRA. ( Search this list-serve for more info on NUA provisions.)
What is your date of birth ? If you are working now, or did so during 2010 already, then do some TAX PLANNING to determine what your tax picture looks like for 2010, and future years. This will help you figure out what an appropriate amount would be in 2010, and future years, from a tax standpoint, so that youi might be able to plan it so that you are in the 15% tax bracket, rather than the 25% bracket, for the next 5 years.
After doing this tax planning, then you can use the reverse calculator to determine how much would be the minimum amount to set aside into a SEPP 72-T plan/account. The balance of your 401-k/IRA should then be set up in a separate IRA account for future emernecies, or to start a 2nd SEPP 72-T if your outside sourcers of income and the 1st SEPP 72-T are not enough.
Then do future retrement planning to see if it makes sense to defer SS benefits until 70, and use the IRA, after the SEPP 5-year period, until 70. In that way you get a 32% increase in your SS benefits over the age 66 benefitfor you and your surviving spouse for the rest of your lives, or a 70% increase over the age 62 benefit.
The amounts of the SEPP 72-T distributions cannot be determined ntil we know what month you plan to start your distributions, which would be determined after you do the other planning mentioned above. THERE ARE NO EASY STRAIGHTFORWARD ANSWERS. It usually makes sense to get professional assistance in making these calculations and analyses.2010-08-15 03:09, By: dlzallestaxes, IP: [18.104.22.168]
L2: 401K withdrawl at 55 ?Freddy,
I would start by asking your employer for a copy of the Summary Plan Description (SPD”) for your 401k plan. There should be a section in it about what kinds of withdrawals are allowed at age 55 or older and retired. I think DLZ may be right that someone with a “vested” interest in “helping” you may be telling you about the lump sum being the only option, when in fact that may not be the case. If you can take periodic withdrawals in amounts you choose from the 401k, there will be no 10% penalty for early withdrawal, and therefore no need for the SEPP plan with an IRA. KEN2010-08-15 03:24, By: Ken, IP: [22.214.171.124]