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Does this plan have a hard ship clause to it for brothers over 55?

this last spring i was told i could make a 1 time withdrawall from my plan i was told that since i was over 55 and that i had been out of work over 50% time (able to work) or worked less than 50% in last 12 months that i could take my retirement fund without the 10% penalty i understand that the federal taxes would be wihtheld at 20% but now according to my tax preparer i still have to pay the penalty if you could answer any or part of this queston i would greatly appreciate it George Pacovsky LU 14

Feb 20, 2012 by George from Eau Claire, WI  |  Flag
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5 votes

Hello George. I get the sense they are not referencing a hardship withdrawal, but rather a normal retiree distribution. If you are working part-time and not full time, you are likely being considered retired under the plan guidelines. While about everyone knows you need to be age 59 ½ to withdrawal from an IRA and avoid the 10% early withdrawal penalty, what many don’t know is that if your distribution is coming from your company retirement plan, and NOT the IRA, you only need to be age 55 to make the withdrawals without penalty. In almost all cases we recommend clients move employer plan assets into IRA’s, but this one case being the exception. If you are not yet age 59 ½, but are over 55, and desire money’s from your retirement plan – leave it with your [former] employer and make your distributions from there. And then only transfer to an IRA when you either turn age 59 ½ or until you know you will no longer need funds until that age. Hope this info clarifies for you. Best of luck.

2 Comments   |  Flag   |  Feb 20, 2012 from East Dundee, IL
David Schlossberg, RFC, AIF

By the way George, let your tax preparer know your distirbutions are not from an IRA, but are from a company plan, therefore the penalty won't apply. And if they do not understand that rule, find another tax preparer!

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Flag |  Feb 20, 2012 near East Dundee, IL
George

To Miss Kaplan and Mr. Schlossberg THANK YOU ! this should help

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Flag |  Feb 21, 2012 near Eau Claire, WI

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Hi George, Plans can have different rules governing hardship withdrawals. You need to clarify with the plan administrator at work to see if their hardship withdrawal rules mean you must pay a penalty. According to the IRS, a a 401(k) plan must provide the specific criteria used to make the determination of hardship. Thus, for example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses. In determining the existence of a need and of the amount necessary to meet the need, the plan must specify and apply nondiscriminatory and objective standards.

Comment   |  Flag   |  Feb 20, 2012 from Berkeley Heights, NJ

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