retirement after 55
client retired after age 55. Needed to take a small withdrawal to pay some bills. We had already told her to leave the balance in the 401k since it was exempt from the 10% penalty. Broker that had the plan was really pissy with her that she rolled the other plan (an ESOP) to us, and told her that if she took anything out of the plan the entire balance was required to be rolled to an IRA. And that’s what happened.
Now she needs another withdrawal, and is subject to the penalty since it’s coming from an IRA.
Can we force them to put the money back into the 401k plan and get the exemption restored? This was clearly not in the clients best interests, and the client told the broker not to do it.
Permalink Submitted by Alan - IRA critic on Thu, 2015-10-22 17:50
Most plans will not accept IRA rollovers for a retired employee. But even if they did, the age 55 separation exception is not worth much if the plan does not allow flexible distributions and/or requires a lump sum distribution.Taking out several years worth of expenses in a single distribution will likely increase the tax bracket and that will often offset the penalty waiver. For that reason, retirees of such plans usually end up doing an IRA rollover and starting a 72t plan to waive the penalty on distributions.