angelface
Contributing Member
Cash: $ 7.90
Posts: 36
Joined: 03 Aug 2005
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anyone of you ever done a direct 401k rollover like it says in that article?
it says "The above example assumes the 401k retiree is less than 59 and 1/2 years old and has to pay the 10% Early-Withdrawal Penalty fee. However, if you are older than 59 and 1/2, this 10% early-withdrawal penalty fee does NOT apply to you. The above example also assumes a Local State Tax rate of 7% (varies from state to state) and a Federal Tax Rate of 30% (20% Withholding Tax + 10% Federal Income Tax)"
did you have to pay the 10% early withdrawal penalty fee?
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Sun Nov 12, 2006 7:48 am |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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You may be confusing rollover with distribution (withdrawing) funds. The under 59.5, 10% penalty only applies to distributions that are NOT properly rolled over to another qualified retirement account within 60 days. The part you quoted (out of context) applies if you keep the money or fail to rollover in time.
If you make a direct trustee-to-trustee transfer from 401(k) to IRA, there is no withholding, tax, or penalty. Although, closing out the 401(k) may involve fees that are removed without tax liability. I did a couple of direct IRA transfers to a new trustee (from fixed interest to self-directed acct), and all they subtracted was a $50 check fee (even though electronic transfer).
The trustee-to-trustee transfer is a key thing to know and to set up properly for no snags. If a check is made out to you instead, 20% withholding is required, and any of the distribution that you fail to roll over within 60 days (including adding back the missing 20%) will be taxed (plus 10% penalty if it applies).
Typically 401(k) transfers or withdrawls can only be done from a "former" employer (not current employer's plan). If you leave an employer, make sure you find out your options, so you do not suddenly find a check in the mail with 20% lopped off.
I knew that required minimum distributions (RMD) beginning at age 70.5 figured all your traditional/rollover IRA's in aggregate, and withdrawing from any of them could satisfy RMD. But I just became aware that RMD for 401(k)'s is figured separately. So it may be a good idea to eventually transfer or rollover a 401(k) to IRA, so you can select which accounts or investments to draw RMD from.
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Sun Nov 12, 2006 3:40 pm |
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