Retire Safe & Tax Free - 401(k) Withdrawals During Retirement


hand pulling cash out of cash machine

What are your options? That depends on the terms contained in your plan documents - your 401(k) plan sponsor ultimately sets the rules. The typical withdrawal or distribution options are:

Lump-Sum Withdrawal

You will owe ordinary income taxes if you elect to take a lump-sum distribution. If you later decide to rollover this distribution, you are required to redeposit the funds into another qualified retirement account, such as an IRA, within 60 days of the distribution.*

*A 20% mandatory withholding applies to lump-sum distributions from a 401(K). If you later decide to rollover that distribution within 60 days, you will not get the withholding back until tax time so you will have to add funds from other sources equal to the amount withheld.

Trustee-to-Trustee Transfer

If you don't want to leave your assets with the current plan sponsor, you may want to consider a trustee-to trustee transfer (direct rollover) to an IRA. This is a non-taxable transaction. This option is generally utilized by those who wish to relocate their 401(k) assets to another custodian or financial institution that more closely fits their planning needs or offers safer investment options.

Automatic Periodic Distributions

Some plans will allow you to request regular monthly, quarterly or annual distributions. Automatic distributions or withdrawals come in handy for RMDs - it eliminates the risk of missing your RMD deadline each year. If this feature is important to you and your current plan sponsor doesn't offer this option, many IRA custodians do.

Withdrawals Anytime

Your plan may allow you to make as many withdrawals as you wish. However, be careful with this type of option - besides any ordinary income taxes you may owe on distributions, you could be charged a high fee every time you take a withdrawal.

Be careful when it comes to fees and your 401(k).

If you decide to leave your 401(k) assets with the plan sponsor, look into the fee schedule. How much will you be charged for each transaction? What about 401(k) management fees, do you believe they are too high

Before deciding to leave your 401(k) assets where they are or choosing to transfer the assets to an IRA when you retire, it is critical to fully assess the pros and cons. We are a retirement distribution specialist and can help you evaluate your situation including information about safe, alternative options. Please contact us today…and we wish all of you a very happy and healthy new year.

Marc H. Weiss, Archer Weiss Insurance & Financial Services, Inc. Please Call Toll free: 1-800-831-2901 or (818) 610-8560