L1: closing 401K
I am 56 years oldandbecame recently unemployed on May 18th. Imaintain a 401K pension plan withthat former employer. Can Iclose that 401K and usethe fundswithoutincurring a penalty? Also willwithdrawing those funds affect mereceiving unemployment benefits?
2018-05-29 15:29, By: 401K, IP: [2600:1702:16f0:d390:9d8d:46d3:c890:5af2]
L2: closing 401K
You should not set up a SEPP 72-T because you were over 55 when you “separated from service”, and your former employer is allowing you to keep your 401-K account with him. Of course, you must confirm, in writing, that they will allow you to take periodic withdrawals at any time in any amount. If so, then these distributions are subject only to Ordinary Tax Rates, and are not subject to the 10% penalty for early distributions.
If you transfer these funds over to an IRA, then you would consider a SEPP 72-T, but that should be done ONLY if you are not allowed to continue to leave the funds wit your former employer.
HOWEVER, there may be an even better option if you worked for a company which has company stock in the 401-K plan, usually from the matching funds that they contribute, or from investments you made in your 401-K account in the company’s stock. This is a special provision called “NUA” (Net Unrealized Appreciation), which can save you a fortune in taxes if your company’s stock value has appreciated over the years. (Get a copy of J K Lasser “Your Income Tax 2018”, which you might find in a library if it is no longer available in the stores, or look up online. I saved a client $ 100,000 in taxes in a similar situation on a $ 700,000 account.)
2018-05-29 18:44, By: dlzallestaxes, IP: [188.8.131.52]