401-k question
I have a client that is retiring next year at 55 years old from a company that she has been with for 35 years.
She wants to take some of her 401-k funds as she retires (about 10% of her total balance) and then transfer (trustee to trustee) the rest of the balance to an IRA, that I am helping her set up.
She knows the funds to her directly would be taxable and that the any further withdrawals from this new IRA before she is 59 1/2 years old would not just be taxable, but also carry a 10% penalty.
The question is: can she do those two steps? (Some funds as she turns 55 and roll the balance to an IRA?
Permalink Submitted by Clyde Wolf on Tue, 2008-08-26 20:11
Bobyackey,
Your client should check the Summary Plan for the 401k. She may be able to take penalty free distributions from the 401k. Some 401k plans allow this some do not.
Another method would be for her to leave her employment. Then transfer the 401k to a Traditional IRA. Next she could begin a 72t distribution taking a substantially equal annual distribution from the IRA for the longer of 5 years or until she reaces age 59.5 years. The taxes would be due each year on the distribution, but the penalty would not.
Read the 401k Summary Plan.
Consider a 72t IRA distribution.