Retirement Planning/401k transfer


QUESTION: This question is for Mr. Brumbaugh that helped me before with my 401k inquiries.

I transferred the majority of my 401K ($100,000+) into and IRA with 72t distributions per your advice.  It has worked out great!  Now that my loan has been paid off, I would like to take the balance of the 401k (approx. $30,000) and do the same.  I need the liquidity, but wanted to know what other options I might have without penalty.  I will be using the same Personal Financial Representative (CRPC) from Allstate that I used before and the account was set up with the Lincoln Benefit Life Company.

Any other great suggestions for the amount in question?

Thanks again, Miss J.

ANSWER: Dear Miss J,

Congratulations for paying off your 401(k) loan. Now if I understand your question, you want to move your 401(k).

Since I answer a lot of questions, I do not remember your situation. What is your date of birth? Did you incorporate the 72(t) distributions with a Lincoln Benefit Life Whole or Universal Life policy? How was your 72(t) distribution calculated? Are you still working for the company through whom you have your 401(k)? If so, does your employer's Summary Plan Document allow non-hardship transfers to self directed IRAs? And if it does, what are the company rules for making these distributions?    

Willard R. Brumbaugh, LUTCF
CA License 0374776
(888) 792-2379

---------- FOLLOW-UP ----------

QUESTION: Yes, I want to transfer the remaining balance ($30,000) of the 401k to a traditional IRA (like before), but should I do the 72(t) distribution or are there other options for liquidity without penalties (i.e. money market, etc.)  The previous transfer was an annuity(Saver's Index Annuity Premier) with Lincoln Benefit Life (An Allstate Company).  I actually paid off the loan with my monthly distributions plus I had 10% taken out for Federal taxes.  I am 54 years of age.  I no longer work for the company.

Thank you.

ANSWER: My suggestions will be based on what your needs are, the amount of monthly distribution you are receiving from the current annuity for how long, and the amount of monthly income from other sources, as well as how much liquidity your current various accounts hold.

I await your response.

Willard R. Brumbaugh, LUTCF

---------- FOLLOW-UP ----------

QUESTION: I'm receiving $473 (after 10% Fed. taxes) until I'm 59-1/2.  This amount was established in order to pay off the loan.  I will try to get $450 after taxes with the new IRA/72(t)I will be having set up tomorrow (Thurs.) Unless other suggestions are made.  It will also be until I'm 59-1/2.  1st IRA is approx. $133,000, and the 2nd IRA will be approx. $30,000.  There is no other monthly income sources at this time ... actively looking.

Thanks, Miss J.

Miss J

The amount you are getting from your current annuity is consistent with a level income for life expectancy. This means that at age 59 1/2 you will have a significant balance which you can withdraw anyway you want after that date without having a re-charging for Premature Distributions.

My understanding of 72(t) rules is that with the $30,000 you could withdraw $1,351 per year as of May 2014 until age 59 1/2. Again with the releasing of the distribution constraints in place prior to 59 1/2.

There is no other way to avoid Premature Distribution Penalties prior to 59 1/2, except for simply leaving the funds untouched till that age. Therefore, whatever you transfer the money into, for sake of liquidity, I suggest that you withdraw only what you need till age 59 1/2 and pay the penalty - leaving what you can till 59 1/2.

Your withdrawals on your current annuity are well under the 10% free withdrawal amount that applies during the surrender charge period. To withdraw more than 10% of the account value of a new annuity will also create premature liquidation charges by the insurance company. Thus, if you have an immediate need for a greater amount of income (and it looks like you do), I suggest that you not put all of it in an annuity. As poor as CD rates are currently, it appears that you would be better served, in part, by an IRA made up of a series of progressively longer Certificates of Deposits. (This is called laddering.)

Willard R. Brumbaugh, LUTCF

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Willard R. Brumbaugh, LUTCF


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.


Ranked in the top 5 in retirement catagories at 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

Life Underwriters Training Council Fellow

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