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Pros and cons if you withdraw from 401k
Thursday, Nov 29, 2007
Question: I will be 62 years old next year. I plan to start drawing my social security and work part-time. If I work part-time for the same company where I have worked for 22 years will I be able to withdraw funds from my 401K? Part-time workers are not eligible to contribute at this company.
Answer: The answer to your question will depend largely on your 401(k) plan's policies regarding distribution of funds. The IRS provides employers and 401(k) plan administrators a fair amount of discretion in when and how they distribute 401(k) investments to plan participants, so the rules can vary widely from one plan to the next. I encourage you to consult with your 401(k) plan administrator to determine if you will be able to withdraw funds from your 401(k) while you are still employed by the company which established the plan. From what I understand, 401(k) plans must begin distributing funds to a plan participant either when the employee turn 59 years-old, or when the employee retires, whichever comes first. Distributions to employees like you, who are older than 59 years-old, but are still employed by the firm, are optional and are made at the discretion of the employer, so you must discuss your plan's policies with your plan administrator. For employees that continue working well past the typical age of retirement, distributions must
start when the employee turns 70 years old, even if the employee is still working for the company sponsoring the plan.
In your case, since you are no longer a full time employee, and therefore not eligible to make further contributions to your plan, you may qualify for disbursements as a retiree. However, you need to discuss the situation with your plan administrator to find out your classification for payment purposes. You may also want to review the 401(k) account terms established by your plan administrator and employer to make sure that you are receiving all disbursements to which you are entitled under the plan. If you feel that your funds are being improperly withheld, you should discuss this with the plan administrator and with an attorney if you feel it necessary.
You should remember that even if you do not currently qualify for regular distributions based on your employment status or age, you may still be able to withdraw funds from your 401(k)
In your case, since you are no longer a full time employee, and therefore not eligible to make further contributions to your plan, you may qualify for disbursements as a retiree. However, you need to discuss the situation with your plan administrator to find out your classification for payment purposes. You may also want to review the 401(k) account terms established by your plan administrator and employer to make sure that you are receiving all disbursements to which you are entitled under the plan. If you feel that your funds are being improperly withheld, you should discuss this with the plan administrator and with an attorney if you feel it necessary.
You should remember that even if you do not currently qualify for regular distributions based on your employment status or age, you may still be able to withdraw funds from your 401(k)
if you qualify for a hardship distribution or other special distribution. The types of distributions available to participants vary from plan to plan, so again, you will need to discuss this option with your plan administrator. Even if you withdraw funds from your 401(k) that would otherwise be taxed, you may be exempt from penalties and some taxes due to your age, allowing you to access the funds you need without fear of penalty. Before making any decision to withdraw funds from your 401(k), I encourage you to discuss your plans with a certified financial planner or accountant to make sure that your plans will not put your retirement investments at risk.
To read more about the regulations governing 401(k) retirement accounts, I encourage you to visit the Internal Revenue Service website at Irs.gov .
I wish you the best of luck in obtaining the money you need, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
To read more about the regulations governing 401(k) retirement accounts, I encourage you to visit the Internal Revenue Service website at Irs.gov .
I wish you the best of luck in obtaining the money you need, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Edith McGee on Saturday 28th February 2009 04:12
Question: I am still employed at 69 and plan to continue working, possibly to age 75. I have 2 401K's, one inactive and one active (which I still contribute to biweekly). How am I affected by the rule of required distribution once I reach 70.5? Do I continue to contribute to the active 401K? Can RMD be postponed on both or either account based on the fact I am still employed? I would appreciate any information you can give me. Thank you.
2. Posted by Bill on Monday 2nd March 2009 12:03
If you are not employed, you must begin distributions by April 1 following the year you reach age 70 1⁄2. If you are employed, you can postpone minimum distributions from the accumulation through your current employer until April 1 of the year after you retire, regardless of your age. If you have 401(a), 403(a), 401(k), or 457(b) accumulations, it is our understanding that only the accumulations from your current employer can be deferred until retirement.
3. Posted by Randy Lawrence on Sunday 9th August 2009 16:44
do 401k contributions have to stop at age 70.5?
4. Posted by Bill on Monday 10th August 2009 09:03
I can find no rule prohibiting contributions to a 401(k) after age 70.5. However, since you are required to take a minimum distribution at 70.5, you may want to consult with a tax planner to decide if you should contribute to a 401(k), or if a Roth IRA is better for you in your particular circumstances.