AboutWillard R. Brumbaugh, LUTCF Expertise I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance.
I have been counselling against most Qualified Plans since 1994.
Experience Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to:
National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council
Education/Credentials Life Underwriters Training Council Fellow
Question QUESTION: My husband has a 401K plan that we need to make withdrawals from or close out. He was diagnosed with brain tumor in 12/08 and continued to work (after tumor removal) until last month, when his employer terminated him. (We are in the process of trying to collect his last paycheck which will include 12 weeks of vacation pay accrued, which is another story in and of itself). So, we have been without funds for over a month now, have a two teens at home (16 and 19) and are in desperate need of funds. Husband has not yet (but will be) put on disability, but not for a while. In the meantime, we receive no income. Husband is 57 (will be 58 in January 10). Since he is no longer employed, we cannot take a loan against the funds (which, by the way over the last 3 years went from over 73K to currently only 29K), but we need funds now and cannot bear to have to lose the 20 +10% we have been told we will have to pay in tax and penalties. Any suggestions how to get around this? Any and all help greatly appreciated. Thanks in advance!!
ANSWER: Dear Jean,
While I research your husband's situation, I am curious as to why he is not considered disabled.
Willard R. Brumbaugh, LUTCF
CA License 0374776
www.willardbrumbugh.com
willardbrumbaugh@yahoo.com
(888) 792-2379
---------- FOLLOW-UP ----------
QUESTION: We are in the process of having him qualified now, but, as he has been able to return to work and continued in his position (as an engineer), there are some hoops we have to jump through. In the interim, his/our income is nothing. We have applied for unemployment also, but his former employer is appealing that. His doctors had cleared him back to work, but his employer said his insurance was becoming too unmanageable. As I said earlier, that is another fish we have yet to fry...
However, that does lead me to a follow-up question; if he is listed as disabled, does that change the 30% hit?
Thanks again....s2e8l
Answer Dear Jean,
At one time a person could "retire" at 55 and get 401(k) distributions penalty-free. I wanted to see if that were still true. CORRECTION: It is still true. I had not read far enough in the article.
That being said, once a person has be declared disabled, one's age becomes a non-issue. Therefore the 10% penalty does not apply. However, should your husband take direct distribution from the 401(k), it is my understanding that his employer would be required to withhold 20% to be sent directly to the IRS.
To avoid this action, your husband should transfer the entire account directly into an IRA. Once in the IRA he could withdraw funds and be taxed on only what he receives. If he makes that withdrawal before 59 1/2 without being disabled, he would be subject to the 10% premature distribution penalty. But only on what he withdraws.
I infer from what you have said that he does not have a Roth IRA or some form of a whole life policy. Is that true? Also, not that you are in a position to act, did he have a group term life insurance policy through his employer that could be converted into a personal policy?
Final question: Do you have available equity in your home to get you by until the issues you have mentioned can be resolved in your favor?
