72t fees and 401k and 55 rule

L1: 72t fees and 401k and 55 ruleMy wife and I are planning to retire at the end of the year. She will turn 55 in December and I will be 60. I have a couple of questions.

Her 401k IRA rollover is with Fidelity. By the end of the year the value should be about $250k. We would like to do the 72t with them. Does Fidelity charge a flat fee for filing the 72t; do they charge fees for setting up a monthly disbursement from her mutual fund accounts?

Her 401k plan with her current employer will be about $50-60k by the end of the year. It is with T. Rowe Price. How does the 55 year rule work on her 401k Does she need to leave it with them until she turns 59 _, can she roll it over to Fidelity under a different IRA than her current one?

We recently did the chicken dinner thing with a financial group. After a few meetings, their recommendation was for me to agree to a $500k variable annuity. This would be about 70% of my retirement funds. We are going to decline their offer. I would like to know what kind of commission there would be on an annuity of this size.

Steve 2007-03-20 10:25, By: bar20, IP: [67.118.7.247]

L2: 72t fees and 401k and 55 ruleThe 10 percent penalty does not apply to your wife”s current 401(k) account inasmuch as she will be severing employement during or after the year she turns age 55. So there is no need for a SEPP under 72(t) for her current 401(k). Her rollover 401(k) account is also exempt from the 10 percent penalty tax because any withdrawals made from that account would be effectuated after separation from service with her current employer during or after the year she turned age 55. Enjoy fishing!!
Joel2007-03-20 11:56, By: Joel, IP: [24.187.32.203]

L2: 72t fees and 401k and 55 rule
Don”t do a rollover of your wife”s plan to an IRA or the dollars will be subject to the IRA rules and not the 401(k) rules.To take advanage of the Age 55 exemption, leave the dollars in her employer”s plan and takes distributions from that plan if allowed.
As for fees, and commissions, you would have to contact whever is selling or marketing the product.2007-03-20 12:03, By: Gfw, IP: [74.136.109.63]

L2: 72t fees and 401k and 55 ruleHer rollover 401(k) account is also exempt from the 10 percent penalty tax because any withdrawals made from that account would be effectuated after separation from service with her current employer during or after the year she turned age 55.
The above statement is just flat wrong. Whenever any account is rolled over to an IRA, the “age 55 rule” is lost. 401(k) and other qualified plans get the benefit of the “age 55 rule” but ALL IRA accounts are subject to the age 59 1/2 rule. Like GFW said, do NOT process an IRA rollover from the K-plan if you want to take advantage of the penalty free, age 55 rule.
However, the age 55 rule is onlyuseful if your K-plan custodian will allow systematic withdrawals like monthly,quarterly, semi-annual or annual. Most will only allow a one-time distribution to you in conjunction with processing an IRA rollover. Check with the company HR department to determine the specific company rules.
Jim2007-03-20 12:46, By: Jim, IP: [24.252.195.14]

L2: 72t fees and 401k and 55 ruledoes the requirement to stay with the 401K plan apply to disability separation from service? in other words, to avoid the 10% penalty, must I stick with the current plan through my (soon-to-be-former) employer or can i rollover to an IRA account?2007-03-20 13:47, By: safford, IP: [24.235.224.206]

L2: 72t fees and 401k and 55 ruleTO REINFORCEwhat JIM said,ANY $$ rolled into an IRA FROM A 401k in the under 59.5 age group will force you to set up at 72(t) –ifyou want to start withdrawing funds before reaching 59.5 without the 10% penalty. Otherwise,you will have to pay the 10% penalties for those early IRA withdrawals. Once it leaves the 401k plan for an IRA,it no longer has that ability to escape those early withdrawal penalties. For the most part, I think the 401k plans out there allow you to take withdrawals if you have separated from service in the year you turned 55 or older,and no penalties apply. That would mean that you would have to leave the $$ in the 401k plan and get periodic payments from them– at least until you turn 59.5. As a general rule, you need to FIRST see what options the 401k planoffers for retirement payments of this nature before deciding what to do. Sometimes, the options are limited, which may force someone to do the trustee to trustee transfer to an IRA where they then setup a 72(t). Another reason to do the transfer to an IRA rollover account would be the limited (or bad performing) choices for investments in the 401k plan,but as a general rule, if you can take payments that make you happy from your 401k plan until reaching the age of 59.5 and then do the rollover IRA from it, you are better off. KEN2007-03-20 15:11, By: Ken, IP: [151.199.54.57]

L2: 72t fees and 401k and 55 ruleSteve: I was not concentrating on the facts. I am sorry. The 401k ira rollover account is indeed subject to the 10 percent tax. Having said that, you may want to rollover the IRA rollover account to your wife”s current 401(k) account. Upon retirement the consolidated account would be exempt from the 10 percent tax because the IRA consisted only of 401(k) money. Now, you may enjoy!
Joel
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Jim: thank you for bringing my mistake to my attention. I assumed it was in a 401(k) rollover account.
Joel2007-03-20 15:50, By: Joel, IP: [24.187.32.203]

L2: 72t fees and 401k and 55 ruleI don”t think she can roll overher IRA rollover back into her current 401k. The rollover is from two different company”s that she worked for. She did find out yesterday that the 6% that her company puts into her 401k is vested for 2 years. If she wants that portion, about $6000.00she would have to work a couple of extra months. She doen”t want anyone in her company to know that she wants to leave, as they think she will be there at least five more years. She is leary about asking questions about exiting with her 401k plan.
Thank you for your responses.
Steve2007-03-22 08:14, By: bar20, IP: [67.118.7.247]

L2: 72t fees and 401k and 55 ruleBar20,
JOEL”S idea for your wife to add her former 401k”s (now in thatIRA rollover) back to current 401k is a good one if she wants to retire soon, and start taking payments from a “larger”401k fund without the 10% (early IRA penalty) and without setting up a 72(t) from the IRA. She could tell the employer that she would like a copy ofthe “plan document” (notthe “summary plan description”) for the 401k so her financial advisor can review it to see if the former 401k moneycan be added to her current 401k.If she gets the DOC (I think they have to give it to her) you shdbe able to determine from it if she can add that money back, and see what the withdrawal options might be for someone who terminates and is at least 55. She may find that their payment options are not what you want to do with the 401k money. Getting the plan documentis a good start and shd not tip them off that she might be leaving. I also think $6k of vesting match is worth working a few more months to have as part of her portfolio.
If allof this does not work out, setting up a 72(t) (aka SEPP) early withdrawal plan from an IRA is not that difficult. The biggest problems that people have is that they want to change (usually increase) the amount being withdrawn before the minimum of a 5 year (since she will be over 59.5 after 5 years) required period ends, and if they only have one IRA, they would have to “bust” the SEPP plan and pay 10% penalties and interest for all withdrawals if they do that. The way around that is to have 2 different IRA”s and only use one for the calculations and withdrawals. Then, if more $$ is needed, either a one time withdrawal (with the extra 10% penalty on just that withdrawal)can be taken from the 2nd IRA without disturbing the SEPP plan in the first IRA, or you can start another 5 year SEPP plan with the second IRA. The other difficulty is that people either use the wrong calculation to determine what they can withdraw, or are paid the wrong amount, and don”t notice it for three years, as in a recent post. The calculator on this site is very good.If you choose amortization or annuitization method, you must use an interest rate that does not exceed the 120% Fed Midterm rate (also available on this site) for one of the two months that precede the month of your first payment. There are many posting about the mechanics on this site that you should review if that is something you might pursue. KEN2007-03-23 05:24, By: Ken, IP: [151.203.32.184]

L2: 72t fees and 401k and 55 ruleKen, thank you very much. I will ask her to check with her plan administrator. Up until now I have been her financial adviser. It looks like we are going to contact Fidelity and use their services. I used Fidelity”s 72t calulator and the interest rate they showed and it came out to about $1500 per month. We figure we will need about $40k for retirement to start based on what we want to do. Since I have about 2 1/2 times what my wife has in my retirement investmentsand being over 59 1/2, needing extra money won”t be a problem. I plan to start my SS at 62.
Steve2007-03-23 10:24, By: bar20, IP: [67.118.7.247]