401k
What is the significance of the age 59 1/2 with 401k/IRA? I turned 59 in January and have a Safe Harbor 401k that will not let me borrow or withdraw from the account at this time. When I turn 59 1/2 will I legally be able to withdraw part of my 401k (note I have never contributed to the plan)? My administrator says for me to do that I either have to leave the firm or retire early and then I have to wait 120 days or more before it’s available. Ken
Permalink Submitted by mk foss on Fri, 2009-02-13 18:24
Apparently Congress in its wisdom decided long ago that 59.5 was the age where you could be trusted with your own retirement funds. That’s why penalties are imposed for withdrawals before that age.
Paricipants in a 401k plan can only receive distributions from the plan before age 59.5 in the event of a hardship – heavy medical expenses, home purchase, higher education are some of the enumerated hardships. If one receives a hardship distribution, it is taxable in full plus the 10% penalty is imposed.
The Internal Revenue Code doesn’t impose restrictions on employees over age 59.5 taking withdrawals from a company plan, but the retirement plans themselves often (maybe usually) have restrictions. As a result, a separation from service is the only way most people can receive retirement benefits before normal retirement age.