New York - The Internal Revenue Code states that, depending on your plan's provisions, you may receive a distribution from your plan:
- At age 59 1/2.
- At retirement, death, disability or separation from service.
- For serious financial hardship.
- At termination of the plan.
You could avoid the 10% penalty for early distributions if you are under age 59 1/2 and take the distribution as part of a series of substantially equal periodic payments made (at least annually) for the life expectancy of you or the joint lives or joint life expectancy your designated beneficiary. These payments must continue for the longer of five years or until age 59 1/2. So, if you retire at age 53, you would have to continue the payments until at least age 59 1/2 before you could change them. If you did this, you would pay ordinary income tax on the distributions but no 10 percent penalty. This type of distribution may or may not be available to you under the terms of your 401(k) plan. You should contact the plan administrator to determine what forms of distribution are available.
If the only way to receive the money from your plan were in the form of a lump sum, one of your options would be to roll it to an IRA and begin receiving distributions under the substantially equal periodic payment method.
You may also be able to take a distribution from your 401(k) account without incurring a 10 percent early withdrawal penalty if you are at least age 55 and separating from your employer. This does not mean someone could leave their employer at age 54, leave their money in the 401(k) account until age 55, and avoid the 10 percent penalty. If you choose to do this, all of your pre-tax contributions, company match (if any) and any earnings that are part of the distribution will be subject to ordinary income tax.
Are you looking to make the most of your 401k plan, but don't know where to start? TheAdviser.com specializes in helping individuals navigate the complexities of retirement planning. Whether you're changing jobs and need to rollover your 401k to an IRA or Roth IRA, or you're simply looking for a portfolio review, our team of FEE-ONLY financial advisers has the expertise to help you reach their goals. With a free consultation available by clicking here, there's no risk in reaching out to us to learn more about how we can help you create a secure financial future. Contact us today to schedule your consultation and start planning for the future you deserve. Alternately, you can visit 1800ADVISER.COM to browse biographies of FEE-ONLY advisers in our network and choose one or more that best fits your needs.
Founded in 1998, The Independent Adviser Corporation has assisted thousands of individuals, families, and businesses. We are 100% independent and objective and offer free private consultations to our clients. Our company publishes free investment research and educational materials, and when specific financial or legal advice is needed, we connect clients with a network of FEE-ONLY professionals. For more information, become a member or to schedule a free consultation, please visit our website at TheAdviser.com or 1800ADVISER.COM.