401k with former employer

Submitted by Larry Bryant on Thu, 2016-09-08 02:10

A 401k participant leaves an employer (company A) at age 55 and wants to keep the ability to withdraw funds and avoid the 10% penalty.

If he then goes to work for Company B, does he have to transfer the Company A 401k into the Company B plan to avoid the penalty or can he just leave it with Company A?

If he works for Company B for two years and then leaves that company, assuming he left the Company A 401k plan in that plan, he will now have two 401k plans. Will he then be able to draw off both, without subject to the 10% penalty?



Submitted by Alan - IRA critic on Thu, 2016-09-08 04:06

The participant will qualify for the age 55 penalty exception for Company A unless he rolls the plan over to an IRA. If he rolls it to Company B, he will still qualify for the exception since he will also obviously be over 55 when he leaves B. However, he might not have immediate access to the funds while still working at B. Therefore, if he wants to have access to the funds while still working at B, he should leave the A plan in place. It is also important to know if A will allow partial distributions rather than a lump sum distribution. For example, if A requires a lump sum distribution, he would have to distribute enough to last until 59.5 and roll over the rest. This might place him in a higher bracket when the distribution is taken even though there would be no penalty. Your last question – if he leaves the balance in A, then also leaves B before 59.5 he can take distributions from both plans without penalty.

Submitted by MIKE KRUCHTEN on Thu, 2016-09-08 11:55

What Publication is the age 55 401k exception found? It still boggles my mind how many advisor’s are clueless to this exception.

Submitted by William Tuttle on Thu, 2016-09-08 20:07

Exceptions to the 10% tax on distributions before 59 1/2.

  • Made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55.

Also, this article here on IRAHELP https://irahelp.com/slottreport/age-55-rule-taking-money-out-company-retirement-plan

Submitted by Alan - IRA critic on Thu, 2016-09-08 20:11

For the IRS Pub reference – see the top of the second column on p 35 of Pub 575 here:https://www.irs.gov/pub/irs-pdf/p575.pdf?_ga=1.126503117.1347689568.1458248194

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