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You setup the withdrawals with whatever forms the plan custodian(s) provide.
At tax time, they send you a 1099-R showing the amounts withdrawn, any withholding tax, and a code (Box 7= 1) that says this is an early distribution. Then you file Form 5329 checking the line that says this was a SEPP (aka. 72t) plan withdrawal. (Code# 02)
I believe the OP is talking about early separation (leaving the employer who has the 401k at 55 or later) which doesn't require SEPP. This would be Code 1.
I've got to ask about this comment? Everything else I've seen or heard has said that the payments must be equal for 5 years or something like that. How would my situation not be SEPP?
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Originally Posted by Blazin65
I've got to ask about this comment? Everything else I've seen or heard has said that the payments must be equal for 5 years or something like that. How would my situation not be SEPP?
SEPP is Not required if you are tapping a 401k.
You will be taking taxable distributions (no penalty for those 55+ and qualified)
These distributions are reported as 1099R.
You fill out your 1040 as instructed.
It is no more difficult than a W2 return.
Be sure to pay quarterly estimated tax, or request a withholding with each withdrawal. (Not sure all 401k offer this).
If you also have a 401k Roth (recently available), then save those distributions for the correct tax planning.
Of course... If you are qualified for ACA subsidies, keep your income below subsidy cliff.
Any tax software (including online filing) can guide you through your tax filing obligations.
Very unlikely you need a tax professional unless you have other more complicated tax obligations.
So many things to cover on all of this. I guess that's why I've been studying for over a year now. LOL. I have heard of lot's of people retiring at 56-59 and having many surprises. I don't won't to be that person.
This little trick is one of the major benefits of a 401k compared to an IRA. If you "retire" (ie are fired or quit) from a company at 55 or later (technically in the year you turn 55) then you can tap that particular 401k without penalty.
So many things to cover on all of this. I guess that's why I've been studying for over a year now. LOL. I have heard of lot's of people retiring at 56-59 and having many surprises. I don't won't to be that person.
I used 72t to take withdrawals from my IRA. I am past that but recall that the required withdrawal period is 5 years or until one turns 59 1/2, whichever is later. There are 2-3 different withdrawal calculations to determine withdrawal amounts, and you must use one of the stated methods and continue using that selected method for the length of the withdrawals (don't recall if you can increase the amount after turning 59 1/2). If you don't, those withdrawals will be subject to the 10% penalty. You will receive a 1099-R for the income and report it on the 1040. There are no special filing requirements or other docs to provide the IRS. Just maintain your records should they ever ask. I was never asked.
Are you planning to take a lump sum or take withdrawals each year prior to 59.5? If regular withdrawals, make sure your employer’s plan allows for that. From what I’ve seen in some other forums that deal with early retirement, some employers only will do lump sum. So, yeah, it is penalty free, but you might get killed in taxes.
you will need to pay a penalty for any money you take out prior to age 59 1/2.ou.
lol
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