When I look up what age you can start withdrawing from your 401(k), I find the answer "59 1/2 or separate from service." I understand what age 59 1/2 means, but what exactly is "separate from service?"
Does this mean I can receive money from my 401(k) at any age as long as I am quit working?
2007-12-17 05:16:31 · 9 answers · asked by danfman 1 in Business & Finance ➔ Personal Finance
59.5 or separation from service, whichever comes later. That means that if you quit before 59, you will have to wait until then. Also, if you're still working after 59, you will have to wait until you leave to begin withdrawing.
2007-12-17 05:20:09 · answer #1 · answered by UltrosII 3 · 1⤊ 2⤋
Absolutely stunning! None of the above answers has the correct info concerning "separation from service". Apparently this is one of the best kept secrets of 401k accounts.
If you take a look at what the IRS itself says about "separation from service", you will find that penalty free withdrawals are allowed from 401k and similar retirement accounts (but NOT from IRAs). If you separate from service (i.e. leave your job) during or after the year you reach 55, then the 10% penalty doesn't apply regardless of whether or not you've reached age 59 1/2.
"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:
"1. Distributions made to you after you separated from service with your employer, if the separation occurred in or after the year you reached age 55,
2007-12-17 05:53:37 · answer #2 · answered by zygote222 5 · 2⤊ 0⤋
A lot of partial truths in the previous answers. If you are still working beyond age 59 1/2 at the job that is providing the funding to your 401k, you can't begin to make withdrawals until you leave that job. If you are younger than age 59 1/2 when you leave that job, you can't begin to take money from the plan without penalty until you reach 59 1/2. However, you can roll the 401k over into a self-directed IRA.
Should you go to work for someone else after retirement, beyond age 59 1/2, you absolutely may take money out of your IRA, or the 401K that you left with the previous employer, even if your new job has a 401k that you can contribute to. Whoever said you have to be totally retired to take out money doesn't know what they are talking about.
2007-12-17 05:31:24 · answer #3 · answered by curtisports2 7 · 2⤊ 1⤋
I definitely would put money away for retirement (consider it more of a capital base at this point) but not in a 401(k). The 401(k) is good to reduce your taxes, but at $7.50/hr, you're in a low tax rate as it is, so you ought to pay the taxes now rather than higher taxes when you turn 59 1/2. Your best bet is a Roth IRA. That money (up to $4,000 for 2006 and 2007) can grow tax-free until retirement (or later), which at 18 is a huge amount of time to allow your money to grow.
2016-04-10 04:22:57 · answer #4 · answered by Anonymous · 0⤊ 0⤋
59-1/2 is when the penalty drops off. Seperate from service is when you quit/retire. But the penalty is still in effect till 59-1/2.
But if you want to retire early penalty free, this is what you do. You take your 401k and roll it into a traditional IRA. Then you can use Rule 72t, and take a minimum of 5 "substantial equal distributions" and avoid the penalty. That you can do at any age. But in order to qualify you have to have a specified amount in your IRA. That will vary depending on age and retirement savings total.
2007-12-17 05:26:33 · answer #5 · answered by Ryan M 3 · 0⤊ 1⤋
not with out a tax penalty. In order to start getting retirement at 59 1/2 years of age from the 401k you must be totaly retired and not working that is what separate from service is
2007-12-17 05:23:12 · answer #6 · answered by golferwhoworks 7 · 0⤊ 1⤋
Separated from service includes:
Quit/Termination
Retirement
Disability
Death
The 10% penalty plus taxes would still apply if your are under 59 1/2.
2007-12-17 05:20:38 · answer #7 · answered by Squat1 5 · 1⤊ 1⤋
Separete from service means you are no longer working for that company.
These days, about 82% of 401(k) plans have loan provisions. That means you can borrow money from your nest egg and pay it back to yourself without incurring penalties. Typically you're allowed to borrow up to half your vested account balance, but not more than $50,000. You have five years to pay back the loan, usually at competitive interest rates, and you can take even longer if the money is going for the down payment on a primary residence. Hope this Helps.
2007-12-17 05:26:53 · answer #8 · answered by bagrok 1 · 0⤊ 1⤋
separation from service is when you leave that particular job at any age for any reason.You can cash in your 401k anytime you want to. If it is before your retirement age, then you will have to pay a hefty penalty as well as taxes, so its not really worth it
2007-12-17 05:23:16 · answer #9 · answered by makelly1979 3 · 0⤊ 1⤋