As a 56-year-old who will be quitting my current job soon, can I take withdrawals from my 401(k) as needed? Or do I have to take even distributions over a period of time?

by Tami Noll Russo, CPA | Aug 05, 2019

I am 56 years old, and I am going to be quitting my current job and going into business for myself. I have a 401(k) plan with my current job, and I know I qualify for the ‘55 rule’ concerning distributions. My employer allows for multiple distributions, but my plan is to take withdrawals as needed. Is this possible, or do I have to do even distributions over a period of time? If that is the case, can I just cash it out completely?

The questions relate to IRS Code Section 72(t)(2)(A)(v) and a participant's ability to take penalty free withdrawals from their employer's 401(k) or other qualified retirement plan if they become separated from service during or after the calendar year they reach age 55 (or age 50 for public safety employees). According to this provision, yes, you can take withdrawals as needed. This exception is unlike other provisions of Section 72(t) where you are required to take a series of substantial equal payments. You are correct that, regardless of IRS code, your particular qualified plan provisions and 401(k) administrator must allow for such distributions. Many plans focus only on the accumulation of assets and aren't set up to help you on the distribution end of things. However, it sounds like you have done your homework. Good luck on your new venture. 

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Answered by: Tami Noll Russo, CPA, is a certified financial planner with Noll Financial Services in Middletown, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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