Stopping Systematic Withdrawls from 401k – Retired after 55
I am presently making monthly withdrawals from my previous employers 401k – Retired in Sept 2006 over age 55 when retired. – Started withdrawals Jan. 2007 & have continued to present. Can I stop these withdrawals at anytime or will they have to continue for 5 years like a SEPP with an IRA? I will be 59.5 in June, 2009
I wld like to stop the withdrawals from the 401k and rollover the remainder to a TIRA. If permitted to stop and do the rollover, will I have to continue making the withdrawals from the new TIRA?
I no longer need this money for expenses and would like to have it grow in a TIRA. Are the rules governed by the Company plan or are there specific rules once you starting making periodic withdrawals from a company 401k plan?
Thanks,
meb24
Permalink Submitted by Alan Spross on Thu, 2008-12-04 18:33
Since you are not on a SEPP, they can be stopped anytime as far as the IRS is concerned. There are no tax code rules. However, the plan might have some stipulation that the monthly withdrawals must be taken for a certain time after you start them. That would be a plan requirement and have nothing to do with any IRS requirement.
The plan probably does not have such a requirement, but if it did perhaps doing a full direct IRA rollover will terminate that requirement.
No withdrawals from the IRA are required, but of course you would not do the rollover unless you were sure that you would not need an IRA distribution in the next 6 months. If you took one prior to age 59.5, the penalty would apply. The age 55 separation exception does not extend to 401k funds after they are rolled to an IRA.
In summary, ask the plan about ending the monthly payments in favor of a direct rollover. In the event you have any after tax contributions in the plan, you might also ask them about first doing a pre tax rollover to a TIRA and the after tax amount to a Roth IRA. That would get any after tax amounts into a Roth tax free and as fast as possible.
Finally, check into any NUA potential if you have highly appreciated employer shares (or would have if the market recovers).