| My first post - 401k question |
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ssdsco
New Poster
Cash: $ 0.45
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Joined: 11 Aug 2006
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| My first post - 401k question |
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I'm retiring next year at age 56. I have a company pension and $500k in a 401k plan.
I need to withdraw about 4% annually from my 401K starting at age 56. What do I need to do to set that up and avoid paying any penalties ?
Also I have a 401k loan outstanding of $15K. I'd prefer not to repay it. If I don't repay it when I retire from my company will I have to pay a penalty in addition to taxes ?
Thanks in advance.
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Fri Aug 11, 2006 8:58 pm |
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coaster
Senior Advisor
Cash: $ 1318.80
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Joined: 11 Oct 2005
Location: Wisconsin
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With respect to the loan, if you don't pay it back, it's considered an early distribution. I found this on the IRS website:
quote:
In order to avoid the 10 percent additional tax on early distributions from qualified retirement plans, the following all must be true:
- you received the distribution after you left the company; and
- you left the company during or after the calendar year in which you reached age 55; and
- your departure from the company qualifies as a separation from service.
So since you won't meet those points with respect to the loan, I believe you'll have to pay the penalty if you don't pay it back before you retire.
When you've retired, you'll be able to take early distributions, but not the four percent that you want. The distributions have to be based on your life expectancy at this point. See the third point below:
quote:
There are certain exceptions to this penalty. The following five exceptions apply to distributions from any qualified retirement plan:
- Distributions made to your beneficiary or estate on or after your death.
- Distributions made because you are totally and permanently disabled.
- Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
- Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income. You do not have to itemize to meet this exception. For more information on medical expenses, refer to Topic 502.
- Distributions made due to an IRS levy of the plan.
From: http://www.irs.gov/taxtopics/tc558.html
Whether or not you can reschedule that distribution rate to what you want once you reach the normal age, I don't know. Perhaps your 401(k) plan administrator can give you more definitive answers. I can only give you my interpretation. 
~Tim~
Eye Candy : Why Whimsy
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Fri Aug 11, 2006 10:15 pm |
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ssdsco
New Poster
Cash: $ 0.45
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Joined: 11 Aug 2006
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Thanks
After reading this I found a substantially equal periodic payments calculator called 72(t) calculator.
Using the fixed amortization method and 4.5% interest rate I landed right on the annual withdrawal amount I was looking for. I have to continue that method for 5 years. Sounds like this will work OK.
I know you have to pay federal and state tax on pension and 401k withdrawals. Do you have to pay social security tax ?
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Sat Aug 12, 2006 2:35 pm |
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coaster
Senior Advisor
Cash: $ 1318.80
Posts: 6496
Joined: 11 Oct 2005
Location: Wisconsin
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Hey, it's great when something works out the way we want, isn't it? 
No, you don't pay Social Security tax on your distributions and pension payments.
~Tim~
Eye Candy : Why Whimsy
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Sat Aug 12, 2006 3:33 pm |
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