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Old 11-21-2016, 02:29 AM
 
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I'm going to take an offer to separate in the spring. I plan to talk with my accountant and financial planner today.
Your experience/suggestions about:

-- ideas for how to minimize taxation on a lump sum to be paid in March. (bi-weekly payments not an option)
(I am NOT the kind of person that makes changes in accounts for little gain. I have one month left in 2016 and two months in 2017. I don't see how maxing out my 401K going from 5% to 15% for three months will make much difference. Besides I want to get my home sold by March first, and could use money in my paycheck now, also. So as far as making 401K changes I'm NOT really inclined to do that.)

-- do you know how defined contribution funds (NOT 401K or pensions) are treated? Can they be taken and rolled over?

-- your thoughts on:
-- where to put money, which types of accounts at least initially (I already have a Roth IRA)
-- COBRA vs. ACA?

(And additionally I will also have proceeds from a home sale, and will NOT be rolling that over into a new home purchase)
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Old 11-21-2016, 04:12 AM
 
Location: Ypsilanti, MI
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Listen to your professional advisors who know you and your situation.

Defined Benefit Pension lump sums can be rolled over without paying taxes, IRA and 401(k) accounts can be rolled over without paying taxes. Based on that, my guess is that Defined Contribution Retirement Plan lump sums can be rolled over as well.

Remember - 55 is the magic age for being able to withdraw from 401(k) plans without paying a penalty. The equivalent age for IRA accounts is 59-1/2. Depending on your age you may not want to roll-over your 401(k) plan proceeds into an IRA. If under age 55, there is the 72(t) rule which allows access to your 401(k) plan money without penalty.
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Old 11-21-2016, 06:07 AM
 
Location: Northern VA
512 posts, read 634,489 times
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Quote:
Originally Posted by MI-Roger View Post
Remember - 55 is the magic age for being able to withdraw from 401(k) plans without paying a penalty.
More specifically, its the year you turn 55 and you have to "separate from service"(leave your job).
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Old 11-21-2016, 06:30 AM
 
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I thought you had to be 59 1/2 before you can withdraw from 401K, Roth and regular IRA's
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Old 11-21-2016, 07:30 AM
 
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The fact that you are nearing retirement age and are only contributing 5% to your 401k does not sound good. That and your concerns indicate that you are not financially ready to retire.


You still might want to take your employer's early retirement offer. The current job market is really strong and if possible even getting better.
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Old 11-21-2016, 07:30 AM
 
Location: Northern VA
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Leaving Your Job On or After Age 55

The age 59 distribution rule says any 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without having to pay a 10 percent early withdrawal penalty.

There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without penalty from their 401k (the "rule of 55"). There are three key points early retirees need to know.

First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575.
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Old 11-21-2016, 07:49 AM
 
Location: Michigan
2,250 posts, read 1,473,747 times
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Quote:
Originally Posted by djplourd View Post
Leaving Your Job On or After Age 55

The age 59 distribution rule says any 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without having to pay a 10 percent early withdrawal penalty.

There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without penalty from their 401k (the "rule of 55"). There are three key points early retirees need to know.

First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575.
I just got separated from my job of 28 years on September 30. I am age 57, about to be 58 in a couple weeks.

There is a BIG GOTCHA in the 55 year old rule and being separated from service, you can NOT roll over your 401k to an IRA. If you do so, you then must wait again until age 59.5 to withdraw money, otherwise you will pay the penalty %%.

I left my 401k at my former employer to let it continue to rack up $$, and I don't plan on taking withdrawals until my severance runs out, which if I'm careful, will be beyond the 59.5 point anyway.

My former employer is one of the Fortune 50, and their 401k plan is in Fidelity, and one of the highest rated plans there is. So I have no qualms in doing this.
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Old 11-21-2016, 07:52 AM
 
Location: Northern VA
512 posts, read 634,489 times
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Here's the second and third points:

Second, if you still have money in the plan of a former employer and assuming you weren't at least age 55 when you left that employer, you'll have to wait until age 59 to start taking withdrawals without penalty. Better yet, get any old 401k's rolled into your current 401k before you retire from your current job so that you will have access to these funds penalty free.

Third, this exception only applies to funds withdrawn from a 401k. IRAs operate until different rules, so if you retire and roll money into an IRA from your 401k before age 59, you will lose this exception on those dollars.
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Old 11-21-2016, 08:27 AM
 
219 posts, read 124,494 times
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Quote:
Originally Posted by selhars View Post
I'm going to take an offer to separate in the spring. I plan to talk with my accountant and financial planner today.
Your experience/suggestions about:


-- your thoughts on:
-- COBRA vs. ACA?

(And additionally I will also have proceeds from a home sale, and will NOT be rolling that over into a new home purchase)
I have gone through a layoff at age 60 in CA and am currently on COBRA, 18 months through the federal plan. It is an HMO plan, my employer stopped offering PPO plans a couple of years ago, it is less than ACA plan, less than 500 per month for both medical and dental in a silver plan. It goes up to 500 per month for 2017. In CA, they offer an additional 18 months on the state COBRA plan, this is state specific though, not sure where you live. I have too much income to qualify for a subsidy in the ACA since I received additional taxable money through a supplemental income plan that lasts for over 5 years.

For the home sale, you should be able to have 250,000 (single) or 500,000 (joint) excluded from income.

https://www.irs.gov/taxtopics/tc701.html
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Old 11-21-2016, 09:26 AM
 
Location: Ypsilanti, MI
2,457 posts, read 3,675,134 times
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Quote:
Originally Posted by djplourd View Post
Here's the second and third points:

Second, if you still have money in the plan of a former employer and assuming you weren't at least age 55 when you left that employer, you'll have to wait until age 59 to start taking withdrawals without penalty. Better yet, get any old 401k's rolled into your current 401k before you retire from your current job so that you will have access to these funds penalty free.

Third, this exception only applies to funds withdrawn from a 401k. IRAs operate until different rules, so if you retire and roll money into an IRA from your 401k before age 59, you will lose this exception on those dollars.


YES!!


Point #2 is important for everyone to know, regardless of their age. Employees should not roll an old 401(k) plan into an IRA when they leave a company for a better job elsewhere. Try to roll it forward into the new 401(k) plan so they can benefit from the special penalty avoidance at the age of 55. Too many TV and print ads are recommending people always roll old accounts into an IRA.


To the young folks who may somehow read this thread, age discrimination is very much alive and active in the workplace. A person should plan their finances to be able to 'retire' while in their mid-50's. Too many employers find fuzzy words to justify pushing out employees up to 10 years before the employee anticipates leaving.


One penalty free provision available to those who are less than 59-1/2 and MUST have access to their IRA savings is the 72(t) rule. See link below. I had always heard the withdrawals must be substantial and equal, rather than substantially equal as described in the article. Either way, as long as the withdrawals are linked to life expectancy and comprise an on-going periodic stream, rather than random withdrawals, the 10% penalty is waived.


http://www.investopedia.com/terms/r/rule72t.asp
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