age 55 - leaving job - 401k

Yes.

Dave

Zoe, the exception I believe you are replying to is referred to as the

The guidelines for calculating 72(t) payments are based on mortality tables, the interest rate, and one of three methods to calculate the allowable distribution. Life expectancy, annuitization, or amortization are the three methods allowed for calculating distributions.

Here's the important part, you MUST continue to make these substantially equal and periodic payments for the longer of 5 years or until you reach age 59 1/2. If you fail to make a distribution you will be subject to the 10% penalty. Also you essentially "lock-up" your money. In an emergency, you cannot take a lump sum distribution without incurring the 10% penalty on ALL of the other money you prematurely distributed as well as the lump sum. Furthermore, once calculated and implimented you can only change the distribution amount once. All distributions are be taxed as ordinary income.

The rules for 72(t) are many and the IRS seems to be constantly modifying them. I would consult with a professional (or a VERY skilled

Good luck.

"kastnna" wrote

No. Rule 72(t) is different from the rule to which the OP is referring.

The OP should google using the words {401(k) withdrawals "age 55"}, for one thing, but it sounds like she's on the right track: Per law, she should not have to pay any penalty, instead paying only income tax on 401(k) withdrawals, assuming she meets the criteria for doing so.

Oh sorry. Ignore above then.

"no" is right. Specifically, "Distributions received if you separate from service with your employer after you have attained age 55." are not subject to 10% penalty. As Zoe stated in the original smart money quote she meets this requirement.

The 'got ya' for some is this; You misunderstand, and retire at 54. You may not take withdrawals until 59-1/2 under these rules. You then go to rule 72(t) and use that process.

And we wonder why so many folk are so confused. The rules are endless.

JOE JoeTaxpayer.com

More precisely, you can take unrestricted 401(k) distributions without penalty during or after the year in which you attain the age of 55 years. If your 55th birthday is in December, you can terminate employment and take distributions anytime during the year. One caveat is your particular 401(k) plan rules -- they may not permit partial distributions, in which case you might have to take and pay income tax on more than you want.

Dave

snip

snip

Or you are laid off/RIFed 3 months before the year turning 55 !!

I'm curious, does this rule apply only to the current 401K plan at the time of age 55+ ?? What about a previous employer 401K that was rolled over to IRA ??

--reed

Once you roll a 401(k) to an IRA, age 59.5 applies for unrestricted, penalty-free distributions.

Dave

That's when you review the 72(t) and see if that's the way you choose to go. Worse case on 72(t) is you don't need the money (in year 2-5), you pay the tax, and invest what you don't use in a post tax acccount. It just takes some thought to run the numbers. JOE

You can annuitize at any age and not pay 10% penalty. That means five years of withdrawals prorated a minimum for life expectency.

In most tax-advantaged accounts you see some sort of five year restriction. I presume thats to prevent these as use as speculative tax shelters, and encourage long term investing.

But let's be clear. The word 'annuitize' does not have to mean 'buy an annuity' here. 72(t) lets you take a series of "substantially equal periodic payments" (SEPP) from your IRA without penalty, you must withdraw money at least once a year, and you must keep taking withdrawals for five years or until you reach age 59½, whichever is longer.

part of above reply lifted from