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401k withdrawals...Age 59 1/2 Distributions

If you have been reading our recent tips on withdrawals from your employer 401k or 403 plan you've probably noticed the 20% rule.  Each time you do a distribution from your plan you'll give 20% to Uncle Sam.  It's a prepayment of taxes and you may get money back on April 15th.  After exemptions and deductions, your tax bracket may be lower than 20%.  Make sure and consult with your CPA or tax advisor.  If you are in a lower bracket you may get a portion of that 20% back.

 Here's a rollover strategy that may make sense:

If you are above age 59 !/s and your plan allows an "age 59 1/ 2 in service withdrawal,"  some plans allow you to move funds to your own IRA.  You'll continue to add money to your plan and your new rollover IRA will allow you to withdraw money at any time.  This  can be a big advantage if you need money or even need to do regular withdrawals.  Your IRA is more flexible:  You don't have to do a 20% witholding.  Your CPA will probably tell you to withold at a lower tax bracket..10, 15 or even 0 if you are retired .

Not all employer plans offer this age 59 1/2 rule.  Make a phone calll to your plan an ask if this is available .  This can make sense if you are an active employee in your plan and need to withdraw money.

Posted on Tuesday, July 22 by Registered CommenterWise Owl | Comments Off