Retirement

L1: RetirementI will be 55 in 2011 and plan to quit and retire from work. I plan to take a lump sum payment from my company pension plan, maybe 375k. I also have a 401k with a loan balance that will not be paid off by the time I retire. Should I withdraw a substantial amount from the pension lump sum payment to pay off my mortgage and can I avoid the 10% tax penalty?Or rollover thetotallump sum amountto an IRA and use 72t for my mortgage payments. I am thinking that 72t is better because I would avoid the 20% withholding tax and income tax on at least 200k. I plan to withdraw my 401k, net of the loan balance, to payoff some of my debts. Do I have to payoff the balance of the 401k loan first that I took while under 55 and still employed? Do I have to pay 10% tax penalty if I do this with my 401k or not, since I am 55 and separated from employment? This is really a great site, I am glad I found it. Thank you so much to everyone.2009-11-04 01:23, By: willie, IP: [69.234.197.27]
L2: RetirementBefore we go down the wrong path, check with your employer if there is NUA (Net Unrealized Appreciation) Employer Stock in your pension or 401-K. If so, there is a special approach that will make most of the other options moot, and save you a lot in taxes.2009-11-04 01:50, By: dlzallestaxes, IP: [72.78.110.230]

L3: RetirementI am pretty sure there is no NUA involve with the pension. However, I am holding a few shares of matching employer contribution in the form of company stock in my 401k.Very small amount under 3k. Do you suggest that I exchange this before I retire? There is actually net unrealized loss on these stocks.2009-11-04 15:03, By: willie, IP: [99.180.69.139]

L2: RetirementWith regard to your unpaid 401k loan, I have a recollection from my working daysthat an unpaid 401k loan will generate a 1099 for taxable income for the outstanding loan balance that was left unpaid when you stopped working. Someone else with more knowledge may be able to expand on that thought. It may be that if you withdraw the entire net balance from your 401k, you will get a 1099-R for entire 401k balance including the 401k loan you just “paid back”. Just wanted you aware of the tax implications of your 401k plan, but I need a confirmation from another poster on that. KEN2009-11-04 15:37, By: Ken, IP: [71.192.120.143]

L3: Retirementwillie…Generally any outstanding loan must be repaid within about 60 days following termination of employment. Any loan not repaid will be treated as a distribution on a 1099. Withdrawing all but the loan is probably no possible since the maximum loan is typically limited to 50% of the account balance.Beforedoing anythingcontact your Plan Administrator and find out what options are available regarding the loan. 2009-11-04 15:53, By: Gfw, IP: [216.80.125.206]

L3: RetirementThanks for all the replies. I plan to withdraw all of my 401k upon retirement at age 55. I know I have to pay income tax but do I have to pay the 10% penalty tax on early withdrawal? How does IRS treat the 401k loan as far as the 10% tax penalty is concerned? Do I have to pay off the loan balance first, then withdraw the total 401k or just withdraw the 401k balance, net of the loan balance? I plan to roll over my lump sum pension balance to an existing IRA and do a 72t. Do you have to apply for 72t with IRS beforehand or do you justdo it when filing income tax returns?2009-11-04 15:58, By: willie, IP: [99.180.69.139]

L4: RetirementWhat are the balances in these 2 plans ?How much do you need to withdraw for current cash needs ?I would consider reversing your planned approach if the amounts are comparable. Roll over your pension into your IRA, and wait until you are 59 1/2 to start withdrawals from the IRA to avoid the 10% penalty on “early distributions from IRAs. Take whatever distributions you need from your 401-k because there is no “early distribution penalty” for those from 401-K plans once you reach the year you are or will become 55, and separate from service inn that year. You have complete flexibility in timing and amounts of distributions from 401-K plans, rather than setting up SEPP 72-T plan which will lock you in as to annual amounts for at least 5 years.Most 401-K plans require you to repay any loans when you retire, or within 60 days. If you will be 55 and separated from service, you will not be subject to the 10% penalty, but will be subject to income taxes. You might want to try to retire in January so that you will not have salary in addition to retirement plan distributions to increase your taxable income for that first year.2009-11-04 17:33, By: dlzallestaxes, IP: [72.78.110.230]

L5: RetirementAll amounts are estimated amounts or balances at retirement.Lump sum pension pmt. = 385k401k bal at retirement = 75k401k loan bal at retirement = 34kNeeded cash at retirement= 41k (or balance of 401k – loan balance)I don’t mind doing a 72t on thepension lump sum payment. Can I roll the total amount to an existing roll over ira (bal. under 5k) or do I have to open a new roll over ira account?Is 72t just filed with your 1040 or are there forms that need to be filed before starting it?Thanks again.2009-11-04 18:50, By: willie, IP: [69.234.197.27]

L6: RetirementUnder your circumstances you will be fine. You will owe taxes on the full 401K gross balance of $ 75,000 because it is the same as getting that amount and then repaying the loan. ( After all, you didn’t pay taxes when you took out the loan.) No 10% penalty. Assuming a 25% income tax bracket, you could owe $ 19,000 in taxes on the 2011 withdrawal, but that won’t be due until 4/15/2012. ( Let’s not waste time discussing estimated tax filings.) But if you don’t have any other 2011 income, then the tax will probably be closer to $ 10,000.Not only are you NOT REQUIRED to get IRS approval in advance for SEPP 72-T plans, but technically you do not have to submit any documentation even when you file your tax return. HOWEVER, it could save future correspondence from the IRS if you do submit your assumptions and figures with your tax return. I do it with my clients’ tax returns. All that you are required to do is keep the applicable documentation.2009-11-04 20:09, By: dlzallestaxes, IP: [72.78.110.230]