AboutDavid M Iannopollo Expertise I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances.
Experience I have over 20 years experience in the business and financial world.
Expert: David M Iannopollo Date: 5/9/2008 Subject: Early 401K Distribution After Age 55
Question I'm looking for a clarification on rules on withdrawing from a 401K plan penalty free before age 59.5. I understand that withdrawals can be made penalty free if you leave your job at any time during the calendar year in which you turn 55, or later, and you can only take money from the IRA of your last employer. I left my employer of 21 years at age 56. I left my 401K money in their plan, where it still resides. However , I subsequently worked for another employer for 15 months before they went bankrupt, although I never qualified for and therefore never contributed to a 401K plan with them. I am now 57 1/2. Am I still eligible to make a penalty free withdrawal from the 401K plan of my first employer?
Answer Hi John,
As long as you "separated from service" in or after you the year you turn 55, you may make a penalty free withdrawal from your first employer's plan. You will stil be taxed as ordinary income any withdrawal amount. Keep in mind the company holding these funds will most likely withhold 20% for federal taxes. If your actual tax bracket is higher than 20%, you will owe more when you file. If your tax bracket is lower than 20%, you will credited for overpayment. Depending on your state there could also be state tax. Hope this helps. Best of luck!
