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I'm 54 and will be laid in March. I turn 55 later in the same year. Will I be able to withdraw 401k without penalty?

Feb 19, 2016 by Bryan in  |  Flag
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Peter C. Karp Level 20

Bryan

I am sorry to hear that you will be losing your job in March. As long as you turn 55 in the calendar year that you are terminated from employment you will not face an early withdrawal penalty from your 401(k) account. Keep in mind that the distribution will be subject to a 20% withholding for tax purposes and will be taxed as ordinary income. If you want to avoid current taxes you can leave the money in the account until you get another job then transfer it to your new employer’s 401(k) or you can roll the money into an IRA. Best of luck in your job search.

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Comment   |  Flag   |  Feb 23, 2016 from San Francisco, CA

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Larry R Frank Sr Level 20

You are correct Bryan, you may take money out of your 401k without the penalty - however, you will still pay state and federal income taxes.

https://www.irs.gov/taxtopics/tc558.html states the following "The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA: 1.Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or ..." in the No Additional 10% Tax section on that webpage.

I wish you the best finding employment so that you don't have to take withdrawals so soon AND can continue to make contributions ... both to ensure a better ultimate retirement down the road. Larry

Comment   |  Flag   |  Feb 19, 2016 from Roseville, CA

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