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The quiet advantage of 401(k) versus IRA
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Posted by MI-Roger [Email] (#882) [Profile/Gallery] (more from MI-Roger) on Wed, 5 Jun 2013 03:35:35 Share Post by Email
In Reply to: 59 1/2 ??, Mike Lynch [Profile/Gallery] , Tue, 4 Jun 2013 13:58:50
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The 59-1/2 age limit applies to IRA funds.

The quiet advantage of 401(k) funds is that if you retire (the IRS uses the term 'service separation' which might include unplanned lay-off too) within the calendar year that you turn age 55 or later, then you can immediately withdraw your 401(k) funds without the additional 10% tax penalty. You choose when, how much and how often. You must pay ordinary income tax on these withdrawals but not the penalty.

If you retire before the calendar year in which you turn 55 you must either wait until you are 59-1/2 (just like IRAs), or initiate a rule 72(t) withdrawal plan that is keyed to actuarial tables, or pay the 10% penalty, or use the money exclusively for a limited number of IRS approved exclusions. With the 72(t) actuarial table distribution you get no choice of how much you will receive each month, and I understand it is very difficult to turn off this flow of funds in the future (i.e. you lose your job and get re-employed many months later after you started the distributions).

Talk to a Tax Professional. I know just enough to be dangerous!
_______________________________________
Saabs owned:
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2000 Viggen Convertible - Sold May, 2022
1964 Quantum IV Formula Car - Retirement project
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