Access to 401k at age 55

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Topic Author
bb
Posts: 325
Joined: Wed Apr 25, 2007 10:04 pm

Access to 401k at age 55

Post by bb »

My 401k plan document does not appear to allow access to 401k plan at age 55. So does the IRS allow this and some plans just don't? Looks like the only option before 59 1/2 is to take a total distribution / roll-over. Was originally thinking would be nice to have some flexibility of accessing money before 59 1/2 outside of SEPP (rule 72t).
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ResearchMed
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Re: Access to 401k at age 55

Post by ResearchMed »

bb wrote: Sat Sep 16, 2017 10:43 am My 401k plan document does not appear to allow access to 401k plan at age 55. So does the IRS allow this and some plans just don't? Looks like the only option before 59 1/2 is to take a total distribution / roll-over. Was originally thinking would be nice to have some flexibility of accessing money before 59 1/2 outside of SEPP (rule 72t).
Yup, it can be plan specific.

DH is still working, and is *way* past regular retirement age.
And he can't touch one cent of the 403b money, until/unless he either separates from employer or goes to less than half time.
It's annoying (in a nice way) to see that money continue to grow (and Employer keeps contributing, no match required), knowing there will be fewer and fewer years of "lifetime support" needed...

RM
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retiredjg
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Re: Access to 401k at age 55

Post by retiredjg »

It is unclear if you are still working and want the money now or working but talking about if you retire. To my knowledge, no plan is allowed to give you access to your elective deferrals before age 59.5 if you are still working. Even then, some do and some don't.

The age 55 rule for 401k/etc. plans has to do with access to the money if you retire in or after the year you reach age 55. Again, some will allow only a total distribution (not very helpful if you are under 59.5 and want the money) and some allow flexible distributions (like monthly or yearly).
Topic Author
bb
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Re: Access to 401k at age 55

Post by bb »

Yes - I was talking about if you retire at 55. On the other hand it seems even if you work until 59 1/2 the options for distributions are limited - lump sum, SEPP. I had assumed after reaching 59 1/2 you could access 401k account balances any way you want - but that also appears to not be the case - according to my plan document.
retiredjg
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Re: Access to 401k at age 55

Post by retiredjg »

Seems like you are out of luck if you retire before 59.5 and don't have other assets to live on for a few years. Roll out to IRA and SEPP seems like the only choice. Be careful to fully understand the SEPP - busting a SEPP is reported to have significant penalties.
Topic Author
bb
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Re: Access to 401k at age 55

Post by bb »

As an aside - can anyone comment on even if you qualify for distributions from a 401k, say at 59 1/2, only being able to do distributions as follows. Surprised there is what appears to be so little flexibility in withdrawals:

A series of installment payments paid to you either annually, semi-annually, quarterly or monthly as you elect, over your life expectancy or joint life expectancy of you and your Beneficiary, subject to applicable regulations.
retiredjg
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Re: Access to 401k at age 55

Post by retiredjg »

After age 59.5, that seems pretty restrictive to me. I think most plans are more flexible. But your plan is allowed to make these kinds of rules if they want.

But it is not very different from what the TSP (federal 401 like plan) does. This keeps the plan costs lower.
Gryphon
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Re: Access to 401k at age 55

Post by Gryphon »

bb wrote: Sat Sep 16, 2017 11:33 amA series of installment payments paid to you either annually, semi-annually, quarterly or monthly as you elect, over your life expectancy or joint life expectancy of you and your Beneficiary, subject to applicable regulations.
That sounds similar to what my 401K offered. I didn't look into it very much since I was rolling over to an IRA to do a 72t plan (since I didn't wait until 55 to retire), but I remember thinking at the time that even if I had waited until 55 (or even 59.5) it wasn't going to be what I expected (which was that I could make 401K withdrawals whenever I chose for however much I wanted).
Spirit Rider
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Re: Access to 401k at age 55

Post by Spirit Rider »

If you are >= age 59 1/2 with a 401k plan with restrictive distribution options. You can still rollover the plan to an IRA. Then you can have unrestricted distributions.

However, if you are >= age 55, but < 59 1/2 with a 401k plan with restrictive distribution options. You are kind of stuck, because the the age 55 exception to early distribution penalties only applies to an employer retirement plan you separate from service >= age 55. It does not apply to plans you left earlier or IRAs, regardless if all or part of the assets came a qualifying plan.

One less than ideal option is to take a full distribution and rollover what remains after you set aside the necessary funds to get you to 59 1/2, to an IRA. This retained amount will be taxable as ordinary income, but will not be subject to early distribution penalties.
retiredjg
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Re: Access to 401k at age 55

Post by retiredjg »

Spirit Rider wrote: One less than ideal option is to take a full distribution and rollover what remains after you set aside the necessary funds to get you to 59 1/2, to an IRA. This retained amount will be taxable as ordinary income, but will not be subject to early distribution penalties.
It may be less than ideal, but it is at least as good as my idea to do a rollover to IRA and then do a SEPP.
Topic Author
bb
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Re: Access to 401k at age 55

Post by bb »

I guess my assumption at this point is I will be doing a rollover to an IRA and then a series of ROTH conversions.
retiredjg
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Re: Access to 401k at age 55

Post by retiredjg »

bb wrote: Sat Sep 16, 2017 8:52 pm I guess my assumption at this point is I will be doing a rollover to an IRA and then a series of ROTH conversions.
Not a bad idea, but that won't help you get access to the money any sooner. Does that work for you?
Topic Author
bb
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Joined: Wed Apr 25, 2007 10:04 pm

Re: Access to 401k at age 55

Post by bb »

Well - I guess I was thinking whenever I retire I will have enough taxable to bridge 5 years in order to access Roth IRA conversion amounts. But you are correct - being able to freely access the IRA money at 55 is what I would really prefer.
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