early distribution from last employer”s plan af

L1: early distribution from last employer”s plan afI am currently 58 years old and was laid off earlier this year. I have some funds in a 401-K that was administered by my former employer and could use those funds to tie me over until I can generate some income. I understand that one of the allowed early distribution exceptions is that if you are 55 or olderat the time whenyou separate from your last employer then you can take distributions from their qualified plan without incurring the 10% penalty. Is my understanding correct?, and, are there any limits on the amount/timing of the distribuiton? Thank you …2007-11-25 18:38, By: robert, IP: [68.2.183.115]
L2: early distribution from last employer”s plan afHello Robert:
You are correct. You are refering to the “separation of service @ 55″ exception. There are two rules which must be cpmplied with:
1. You must be 55 (or attain 55 in year of separation) — You pass here.
2. The funds must come directly from the 401(k) plan to you. You may not roll these funds over to an IRA and then distribute from the IRA.
Lastly, your distribution options will be governed by what the 401(k) plan permits. SOme plans permit periodic distributions; some do not.
TheBadger
wjstecker@wispertel.net
2007-11-26 05:30, By: TheBadger, IP: [72.42.67.29]

L2: early distribution from last employer”s plan af Thank you. I appreciate the reply …2007-11-26 08:35, By: robert, IP: [68.2.183.115]

L2: early distribution from last employer”s plan afYou are close enough to 59.5 to utilize the exception even if the employer requires a lump sum distribution. You could estimate your living costs from the present to the date you attain age 59.5, and ask the plan to send you a check for that amount. The remainder can be transferred directly to a traditional IRA that you set up to receive the remaining funds. There will be 20% mandatory withholding on the portion send to you for your living costs, so that that into consideration. Since you already have income in 2007, it would be best to delay the taxable portion of the distribution until January, so you will have your income distributed more evenly over the two years.
Finally, if you were with this employer for some time and have highly appreciated employer stock shares in the plan, check out the possibility for NUA (net unrealized appreciation). This would allow you to pay the much lower LT cap gain rate on the gains that occurred in the plan on company stock, rather than ordinary income.
2007-11-26 11:14, By: Alan S., IP: [24.116.165.60]

L2: early distribution from last employer”s plan afAnd if, as Alan suggests, you do have highly appreciated stock in your plan, you MUST wait until next year to start the transfer process. This usually takes some time to complete and ther”s just not enough time left in 2007 to get it completed.
Jim2007-11-26 11:26, By: Jim, IP: [24.252.195.14]

L2: early distribution from last employer”s plan afAs far as NUA transactions, you might be able to complete them by 12/31 if you submit the paperwork this week. However, then you will owe the taxes by 4/15/08. If you can wait until January, then these same taxes won”t be due until 4/15/2009 !!! There is significant tax planning to be done concerning the various aspects of NUA (including determining the related EMPLOYER cost basis), the tax impact in the year it is done, and tax planning for future years. I saved one client over $ 100,000 by PLANNING all aspects of an NUA situation.2007-11-26 13:59, By: dlzallestaxes, IP: [151.197.226.28]