Concerning distributions from a 401(k) account

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L1: Concerning distributions from a 401(k) account I will be 55 this year. Under the current IRS ruling, I can begin taking early distributions from a 401(k). My question is what are the limits( if any ) allowed. If I currently have $80,000 available can I take $16000 annually over a 5 year period or do I have to adhere to the 72(t) rule that applies to an IRA? Thank you in advance for any information. I would be most grateful.2007-04-15 14:27, By: norman, IP: [152.163.100.6]
L2: Concerning distributions from a 401(k) accountIf you separated from this employer in 2007, you qualify under the age 55 exception from penalty and can take distributions under whatever options the plan offers you.
If you separated prior to 2007, you may be stuck because a SEPP plan will not produce a 20% payout. You might click on “SEPP Plans” above to see what other Sec 72 exceptions might apply and cover at least some part of your distributions.
2007-04-15 21:38, By: Alan S., IP: [24.116.66.98]

L2: Concerning distributions from a 401(k) accountThank you Alan for your quick response. Ok now that you have answered that piece of the puzzle, I will continue the planned scenario. I retired this year at the end of March. I have approximately $94,500.00 in my 401(k). I also have approximately $200,000.00 in a standard IRA. So here is what I was planning. I wanted to take advantage of the 55 rule for the401(k) account over the next 5 years. That would put me at 59.5. Thereafter I would be eligible to start drawing the proceeds from my IRA on an annual basis without the uncertainty of rule 72 (t).So the next question is are there limits as to what amount you can draw from a traditional IRA after reaching the ripe old age of 59.5. Thanks again.2007-04-16 05:55, By: norman, IP: [152.163.100.6]

L2: Concerning distributions from a 401(k) accountNorman,
From age 59.5 to 70.5 there are no rules concerning distributions. You are free to take as much or little as you choose, but of course its all taxable at ordinary income(unless the TIRA is a non-deductabile IRA).
One quick question for you. Do you have any employer stock in your 401k? 2007-04-16 07:09, By: Nick, IP: [205.135.136.10]

L2: Concerning distributions from a 401(k) accountAfter you reach age 59 1/2 you may take as little or as much as you wish from your IRA and you are only liable for the taxes on ordinary income. No penalty for these withdrawals. However, taking it all out at one time, and in the amounts you have listed, would probably not be real smart. You would lose about half of the account value to taxes, not to mention future growth for future distributions.
Jim2007-04-16 09:00, By: Jim, IP: [24.252.195.14]

L2: Concerning distributions from a 401(k) account No Nick. Thank you. You folks are great. Let me ask another question. Should I avoid annuities totally? Or should I consider a partial amout to protect some of the assetts? I could reduce the amout taken each rear from the 401(k) and set up an annuity allowing S.E.P.P.s for the next 5 years from the IRA. Starting in June. That is the month I turn 54.5. Does this make better sense and what type of annuity should I consider ( fixed or variable) if that seems a viable option? I”m concerned that there may be many “financial advisors” out there that are more concered about thier “interests” rather than mine. Thank you all. This is the best web site on the net.2007-04-17 05:31, By: norman, IP: [152.163.100.6]

L2: Concerning distributions from a 401(k) accountNorman…
Thanks for the nice comments about the site – I do appreciate.
Should you “avoid annuities totally” – not necessarily.
However, over a short time period like 5 years, if you wanted an absolute guarantee, also consider treasuries and maybe a 5-year CD. With very little effort, you could probably out perform the annuity.2007-04-17 05:43, By: Gfw, IP: [24.148.85.129]

L2: Concerning distributions from a 401(k) accountLet me try to clarify some misconceptions or misunderstandings. First, since you qualify for the 401-k, age 55, separation from service exception, you are not subject to the 10% penalty for “early distributions” before 59 1/2. Therefore, you can withdraw any amount at any time from your 401-k, subject to the plan”s regulations. As stated earlier, these withdrawals will be subject to federal income taxes, and most states (except PA where retirement plan distributions are not taxable in most situations), but not the 10% penalty. As a result, your cash needs and tax consequences should be your primary concerns. Finally, if you NEED more than you can get from your 401-k plan over the next 5 years, then you can set up a SEPP 72-T using some or all of your IRA accounts to supplement your 401-k distributions. (We usually recommmend not using all of your IRA accounts for this calculation, leaving a portion of them in a separate account in case of emergencies.) I hope this helps clarify your situation.2007-04-17 08:03, By: dlzallestaxes, IP: [4.175.9.240]

L2: Concerning distributions from a 401(k) accountNorman. Let me toss out some thoughts about your situation and your questions. My field is Financial Advisor.
1. Check out how much flexibility your K-plan will allow you for distributions. Most that I have dealt with only allow a one-time distribution directly to the participant in conjunction with transfer to an IRA Rollover account. If your plan will not allow you to take monthly systematic or varying “one-time” periodic distributions when you need a little extra, then you may be stuck processing the rollover and setting up a SEPP Plan from the IRA. Finding out your ground rules is your first action and will direct your other actions.
2. In my practice I use variable annuities (VA), mutual funds, and separate accounts on a fee basis. The solutiondepends on the client”s situation; how much money do they have and what are they trying to accomplish. Irarely use traditional fixed annuities and will never use an Equity Index Annuity (EIA), which is now being called a Fixed Index Annuity (FIA). I studied this product for about 10 years trying to understand the interest crediting methods, which are too many to count, and how to use it effectively. About two years ago I concluded the product was not worth the effort and thus made my decision not to offer it. EIA / FIA annuities fall into the category of fixed annuities, and should really be viewed as a savings vehicle. Also, EIA / FIA and traditional fixed annuities may be sold by someone who only has a state insurance license and is not securities licensed. So if you find yourself dealing with an insurance only agent trying to take care of your retirement funds, then you have a problem and I would suggest walking away to find someon with more to offer. Too many marketing organizations are trying to sell EIA /FIA products as “investments” which they are not. These organizations are also convincing people with mutual fund, VA, and fee-based accounts to sell out an buy EIA / FIA products. Finally, Check closely, VERY CLOSELY, the surrender period and surrender charges for EIA / FIA annuities. Don”t be surprised to find 10 to 20 yearsurrender periods and maximum surrender charges approaching 20%. Check out current VA offerings. In recent years the industry has developed some really good “living benefit riders” which can guarantee down-side protection from market losses while allowing you to participate in the full market action. EIA / FIA annuities do NOT allow full market participation, but some salesmen try to make you think you get full market participation. Let your advisor show you several alternativers. You migtht find one that fits your sutuation just fine.
3. Look for a Financial Advisor who is associated with a Registered Investment Advisor firm. This person will be able to provide objective advice for your situation. Don”t get hung-up on how the advisor is compensated. You may be charged a planning fee which is separate from other fees and commissions. There is a reallylousey conceptgoing around the media that anyone who is compensated by commissions is “a bad person” and you should never deal with them, and that you should only use a “fee-only” planner to avoid a “conflict of interest.” This is bunk. It doesn”t make sense to pay someone a $2,500 planning fee to pick your $4,000 annual IRA contribution. This is a commission situation plain and simple. Of course your alternative is to do it yourself if your feel competent to make those decisions. I”m sorry, but any old “no-load fund” may not be the best for yoru situation. And no, index funds are not the panaceia and end-all for everyone. Again the media would have you think index fundsare the best. Problem is you participate in all of the downside as well as the upside. No “cookie-cutter solutions” work here.
4. Finally,the success or failure of your plan will depend on which way the market is going when you start taking distributions. If the market is going up then you will probably be successful. If it”s going down, then you may have problems. Watch this aspect really close. If you do a fixed income investment for your SEPP, watch this closely also. You may be able to create a good “ladder” that will carry you but this takes good planning.
Good luck.
Jim2007-04-17 08:53, By: Jim, IP: [24.252.195.14]

L2: Concerning distributions from a 401(k) accountJim, Thank you for theinsight. I want to thank all who responded to my scenarios and concerns concerning my situation. I would recommend this web site to anyone considering the utilization of rule 72 (t). I do have a financial advisor that I trust. Thanks again folks…………………….. 2007-04-18 06:32, By: norman, IP: [205.188.116.6]