Early 401k access

[Deleted]

Hi All,

My husband and I are doing some pre-retirement planning and I have a question about accessing our 401ks prior to age 59 1/2 without a penalty. He will be 55. In the back of my mind I think I remember reading something about folks being able to access their 401ks early if they took equal installments over a period of time once they had separated from service and were over a certain age, perhaps 50?

Does anyone know about such a provision or am I engaging in wishful thinking?

Thanks for your help,

Bonnap

[mwcpa]

from the IRS.gov website....

"The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:...
Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55,"

[Deleted]

MWCPA,

As always thanks for your prompt response.

Turns out I didn't have the proper information when I posted but hopefully I found an suitable solution. So I'm posting the additional information I found and I would appreciate your input.

DH is on a 3 year contract with a two year option (at the company's option) to renew. The initial 3 year term ends 7/31/12. DH turns 54 on 11/07. He is then eligible for severance pay for 6 months through 1/31/13. Then he will be 55 in Nov of 2013. So it sounds like it depends on how the company will classify the severance period. He will get all the normal benefits including health insurance except he is not able to participate in the 401k plan.

So assuming that employment ends 7/31/12, the year he turns 54 and therefore ineligible for the early 401k termination, it appears that we can still accomplish our goal via a 2 step process.

According to the article I read, it sounds like if we roll over his 401k into an IRA he can access the IRA via taking equal payments over a 5 year period or until he reaches 59.5 whichever is longer. So as an example, say the value of his 401k is $400k and we want to take withdrawls approximating a 4% annual rate of return on that money or $16k/yr ($1,333.33/mth). Presumably he could start whenever he wanted, say April 7 of 2013 (age 54.5) and take equal monthly distributions through April 6 of 2018 (age 59.5) which would be 60 months? Then he would have access to the full balance of the 401k (presumably $400k if we estimate the return correctly) without penalty, but of course all withdrawals would be subject to whatever our ordinary tax rate is at the time.

So do I understand the IRA distribution rules correctly?

Thanks again for your help,

Bonnap

After doing this exercise I see there's another tax scenario I need to model which is whether it makes more sense to spend principle in our non-qualified savings approximating the income from the 401k/IRA vs paying tax on the distributions. Hmmm...