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|What are the early withdrawal penalties for my 401(k)?
By The-Adviser.com -
- The Internal Revenue Code
states that, depending on your plan's provisions, you may receive a distribution from your
So, if you're retiring at age 53, you may receive a distribution.
The second rule, which is the one you're referring to, states that there will be no 10 percent penalty prior to age 59 1/2 if the distribution is "part of a series of substantially equal periodic payments made (at least annually) for the life expectancy of the individual or the joint lives or joint life expectancy of the individual and his designated beneficiary." It goes on to say that these payments must continue for the longer of five years or until age 59 1/2. So, if you retire at age 53, you would have to continue the payments until at least age 59 1/2 before you could change them. If you did this, you would pay ordinary income tax on the distributions but no 10 percent penalty. But, because you could do it this under the law doesn't mean that you will be able to under your plan.
This type of distribution may or may not be available to you under the terms of your 401(k) plan. The manner in which you may receive the distribution at retirement depends upon your plan document. Some plans only provide for a lump-sum distribution -- meaning that you receive the entire amount at once. Other plans will allow you to take distributions in the form of an annuity calculated on your life expectancy as previously explained. You should contact the plan administrator to determine what forms of distribution are available.
If the only way to receive the money from your plan were in the form of a lump sum, one of your options would be to roll it to an IRA and begin receiving distributions under the substantially equal periodic payment method. Either the financial institution that you move your money to or a financial planner will be able to help you calculate the amount that you might be able to withdraw.
A Rollover IRA allows you to purchase individual stocks and avoid the fees associated with your 401(k) plan.
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