IRA 72t without penalty payments

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L1: IRA 72t without penalty paymentsHi, I was told you could set up a 72t IRA from my 401K without penalties,providing thatI was laid off the same year I turned 55 years old. Do you know how I need to do this? I sure could use more money coming in and I can always start another IRA once I return back to work.Thanks,Dabadoo2009-01-14 19:44, By: dabadoo, IP: []
L2: IRA 72t without penalty paymentsSince you were separated from service in the year you turned 55, you can take distributions directly from the 401k plan without penalty. If the 1099R you receive from the plan does not show the exception code in Box 7, all you need to do is file Form 5329 and show exception code #01 on line #2.For this to work for you the plan must be able to offer you adjustable periodic distributions or non periodic distributions until you are 59.5. A lump sum will not help because it will inflate your ordinary income too much in the year of the lump sum. So contact the plan administrator to determine what flexibility the plan offers for you to take the distributions you need.When you return to work, all you need to do then is to stop the distributions from the 401k plan. Do not directly roll that 401k to an IRA until you reach 59.5 just in case the next job also falls through.2009-01-14 20:24, By: Alan S., IP: []

L3: IRA 72t without penalty paymentsGood advice, as usual, Alan.The law allows 401k plans to make partial distributions but does not require them to do so. The result is that some plans offer this feature and others do not. An employee (and presumably a former employee) can get a printed copy of the summary plan document (SPD) fromtheir company’s HR department for the asking. If an employee asks for this document, the company must supply it. I believe that they are allowed to charge a few dollars for the cost of copying but many do not charge anything. The SPD will contain all of the capabilities of the plan, although it can be difficult to read all of that bureaucratese. Whether or not the plan offers partial or only total distributions will be in there somewhere. Yes, it is easier to just ask an HR person about this but it sometimes happens that they do not know or they give an answer that is not supported by the SPD. IMHO, it is always better to go to the source for any necessary info.2009-01-14 23:56, By: Ed_B, IP: []