Question about response to SteveJ”s question
L1: Question about response to SteveJ”s questionThe answer to SteveJ”squestion contained the following statement about which I have a question:
“Distributions from 457 plans are exempt from the 10% penalty once a person retires AND separates from service, regardless of age. 457”s are one of the only “4” plans (401k, 403b, etc) that allow this.”
My question: My employer allows retirement at age 50 (normal retirement age is 50). Based on the statement above, is it possible for me to retire and separate at 50 years oldand then withdraw from my 401(k) without the 10% penalty? I thought the only way to take penalty free 401(k) withdrawls was to separate at 55 or beyond or wait to make withdrawls at 59 1/2 if separated prior to 55. 2008-04-09 19:38, By: Florida, IP: [184.108.40.206]
L2: Question about response to SteveJ”s questionHello, FL:
While your employer may allow you to retire at age 50, does that obligate them to fund your retirement? I would think that it does not but your employer is the place to find the clairification you seek.
As to 401k plans, the separation from service at age 55 exception to the 10% early withdrawal penalty is pretty clear. You HAVE to be age 55 in the year that you separate from service to neet the exception rule. Additionally, your 401k plan may or may not allow partial distributions. As far as I know, the IRS rules allow partial distributions in this case but do not require that individual 401k plans allow it.
If it turns out that your employer will not fund your retirement at age 50, then you can still roll that 401k plan money into a TIRA and set up a 72t / SEPP plan to get retirement income without the 10% penalty being applied to the withdrawals.
Silly question on my part: Are you sure that you have a 401k plan? Most organizations that allow retirement at age 50 are public service jobs, such as police, fire, or military. Those groups tend to have pretty good retirement plans that arenot 401k plans.
Ed2008-04-10 11:05, By: Ed_B, IP: [220.127.116.11]
L2: Question about response to SteveJ”s questionI thought I posted a response but I don”t see it so I”ll try again.
Yes, the normal retirement age for us is really50 years old and the company allows me to take distributions at 50 years old. I read it in our 401(k) plan document with my own eyes! Our VP of HR said he had to get some kind of “approval” from the IRS and that he had done the same thing at another company he worked for before doing it here. Icouldn”t figure out how the normal retirement age of 50made any difference given what I know about the rules for 401(k) distributions (55 separation or 59 1/2 years old or 72(t)). The VP of HR did something special to make our plan have a normal retirement age of 50. I know it”s not normal situation and I”ve never seen it before.
When I”ve told people our plan allows us to retire and withdraw at 50 years old people think I”m crazy and I can”t provide any proof otherwise other than “my VP of HR said it was true.” Up until now, I have never heard anyone elsesay it really is possible to take 401(k) distributions at 50 without a 10% penalty.
I don”t work in the public sector. I work for a family-owned manufacturing company. When I retire, I will leave with my 401(k) which includes my contributions, a good match and profit sharing contributions made by my employer.
So if we have the right hooks in our plan document, is it really possible that I can retire at 50 (or any age under 55) and take 401(k) distributions without the 10% penalty? What is the legal justificationI can print out and read for myself and show to the other non-believers?
I actually have money in both Roth and Regular 401(k)”s at my current employer.2008-04-10 14:38, By: Florida, IP: [18.104.22.168]
L2: Question about response to SteveJ”s questionI know what you mean about posting a response and not seeing it. This site eats a post from time to time. When that happens, it usually flips me to the home page rather than staying in the forum area. I just copy my response to the clip board before posting, so I can paste it in again if this happens.
I”ve never heard of an IRS approved 401k plan that allows penalty-free withdrawals at age 50. This is not to say that there aren”t any but I also have not seen ANY reference in the tax laws that would allow it. Police, fire, and military personnel can do this because they tend to have pension plans and not 401k plans. I would ask your VP of HR to give you a reference to the part of the IRS regulations that specifically allow this. If he can do that, then you can look it up and read it for yourself. It would be good to post a URL for that citation as well. Most of the folks who frequent this site are quite knowledgeable about retirement issues and it would be good to learn more about this heretofore unknown (by me at least!) possibility.
Ed2008-04-12 09:09, By: Ed_B, IP: [22.214.171.124]
L2: Question about response to SteveJ”s questionI lost my entire post again (even before posting)but I had done intermediate saves thanks to your recommendation!
Technically, the VP of HR didn”t say he got the plan approved for penalty free withdrawals. He just said he got the plan approved with a 50-year old normal retirement age. These are two totally different things in my mind. Maybe in hismind, the retirement age approvalgot translated to “you can start taking your money out at 50 penalty-free.” He may be absolutely correct about the fact the plan willhappily give you monthly/yearly distributions without having to prove hardship, but he may have totally missed the fact that those distributions carry a 10% penalty.
About a year ago, I asked some pointed questions about withdrawals but I could tellhe was gettinga littleannoyed with meso I backed off. As it turns out, I currently have an email conversation going on with our 401(k) provider (Principal) on which the VP of HR is copied. It started out with some questionsabout the Roth401(k) start date that was in my account profile on the Principal website. They had the “wrong” date in that I had made my first Roth 401(k) contributions when we had a different 401(k) provider. As it turned out, the “inaccurate” date didn”t matter because a contribution made January 1 is the same as a contribution made December 31st. Both contribution dates allow the whole year to be counted toward the 5-year clock.
The discussion reached a point where I was able to ask thequestion about what happens if I were to retire at 50 and take distributions from my 401(k). Principal responded that I would receive a 10% penalty. My next question was “so what”s the benefit of a plan with a normal retirement age of 50?” I”m waiting to see how the VP of HR responds to Principal”s answer regarding the 10% penalty because I think their answer conflicts with what he believes to be true.2008-04-12 09:49, By: Florida, IP: [126.96.36.199]
L2: Question about response to SteveJ”s questionWeb servers have time out settings – if you take a long time writing your post and the server times out, it will bounceyou back to the initial website page. 2008-04-12 10:35, By: Gfw, IP: [188.8.131.52]
L2: Question about response to SteveJ”s questionThanks, Gfw. I wondered if timing out was the issue as my responses were long. It”s just as easy to draft the response somewhere else and copy & paste when I am ready to post.2008-04-12 10:47, By: Florida, IP: [184.108.40.206]
L2: Question about response to SteveJ”s questionFL:
Perhaps the company is only saying that they allow people to tap into this money at 50 and not that it will be penalty free if they do so?
I saved one of my early form 5498s that shows a Roth IRA contribution for me in 1999. I keep it in a file just in case there is ever any question as to when I started it.
It would not be a first time event if what an HR person believed and what the law says are not the same thing. Most of them do a good job but it is a complicated and changing set of rules. It”s always good to check with them first but it is also good to corroborate the info elsewhere.
I”ve had some questions that the HR group could not answer right away but they were good about finding an answer for me. I usually ask for a reference so I can “look it up and learn about the area in question in more detail”.
Ed2008-04-13 20:37, By: Ed_B, IP: [220.127.116.11]
L2: Question about response to SteveJ”s questionThanks for the info on web site time outs, Gfw. Some answers require more detail so the draft in notepad, copy, and paste routine works well for that.
Ed2008-04-13 20:39, By: Ed_B, IP: [18.104.22.168]