My mother has a 401k with her current employer. She is 65.?

Question

Since 59 1/2 is the age when you are allowed to take distributions without penalty, is she allowed to take some or all of the money out (obviously paying taxes on the withdrawal) even though she is still employed there? She has a 14k dental bill. FYI- She is not contributing to the plan (it currently offers no matching) at this time. Some have said once you're 59 1/2 you can take out whatever you want (by IRS rule), others seem to think the employer can disallow any withdrawals as long as you are employed with them. What's the correct answer?

You see, I get conflicting answers...technically she's of age to take the money, as much as she wants, right? But the wrinkle is she's still employed there, so her employer's plan might have some sort of restrictions on distributions while you're still employed with the company...in fact I think my mother said the person handling the plan at her company (the bookeeper, it's a small business) seemed to think there was some penalty or other restrictions....is this permitted or does the IRS code supercede any of the plan's restrictions?

Answer 1

Age 59 1/2 is simply an IRS dictated age where a withdrawal can be taken without that infamous 10% early withdrawal penalty. It doesn't mean that the employers have to allow an in-service withdrawal at that age. An employer still can allow for withdrawals only at distribution time. Or they can allow for inservice withdrawals but limit the amount only for specific hardship reasons and only to the extent of the employee contributions. IE if your mom only put in 10k of her own money then she could only take 10k out even if her account balance is 30k.

All that being said...most plans begin allowing for distributions of all money types once the participants reach normal retirement age which is generally 65. Your mom should ask for a copy of the plans Summary Plan Description and look under the withdrawal and distribution options. It will be spelled out very clearly in there. Anything that anyone says on here is purely speculation and can't be relied upon. You need that Summary Plan Description.

Answer 2

Only the last answer is right. 59 1/2 is the magic number to take money out from retirement savings without penalty as far as IRS concern, but not every employer 401k plan allows withdraw from current employee. IRS does not dictates employer plan in this regard.

Having said that, employer plan usually allow withdraws for hardship or medical care purposes.

The best place to start is to call the 800 number printed on her quarterly statements.

Best wishes.

Answer 3

I agree. It is her money, and even if someone is less that 59.5, there is no way an employer can tell you that you can't w/ draw. By the way, the dentist is probably charging 18%, so it would be a good idea to pay it off, even if it means paying the little more in taxes.

Now if you say she is retiring in a year, then may be it would make sense to wait, but only because she will be in the lower tax bracket. If not, then tomorrow would be soon enough, to pay the bill.

Answer 4

Your mother should check with the HR dept. Some plans only allow withdrawl for dire emergencies. While other plans are rather liberal.

Adding that $14K to her income will certainly put her in another tax bracket. Figure about 20% to cover taxes.

Answer 5

To be absolutely sure she would have to ask the human resources dept. of the company she works for. I would think she could take it out now if she wants, but the company may have rules.

Answer 6

The second one is not true. Your mom is allowed to withdraw all vested balance.

It's her money!!!