401(k) Withdrawals During Retirement

QUESTION: WHAT ARE YOUR OPTIONS WITH RESPECT TO YOUR EMPLOYER SPONSORED 401(K) PLAN WHEN YOU RETIRE?

Answer: It varies depending upon the options that are made available to you in your plan document - your 401(k) plan sponsor makes the rules!

TRUSTEE-TO-TRUSTEE TRANSFER

If you don’t want to leave your assets with the current plan sponsor, you may want to consider a trustee-to trustee transfer (direct rollover) to an IRA. This is a non-taxable transaction.

LUMP-SUM WITHDRAWAL

You will owe ordinary income taxes if you elect to take a lump-sum distribution. If you later decide to rollover this distribution, you are required to redeposit the funds into another qualified retirement account, such as an IRA, within 60 days of the distribution.*

AUTOMATIC PERIODIC WITHDRAWALS

Some plans will allow you to request regular monthly, quarterly or annual withdrawals. Automatic withdrawals come in handy for RMDs – it eliminates the risk of missing the RMD deadline each year.

WITHDRAWALS ANYTIME

Your plan may allow you to make as many withdrawals as you wish. Be careful with this type of option – besides any ordinary income taxes you may owe on distributions, you could be charged a high fee every time you take a withdrawal.

Be careful when it comes to fees and your 401(k). If you decide to leave your 401(k) assets with the plan sponsor, look into the fee schedule. How much will you be charged for each transaction? What about 401(k) management fees, do you believe they are too high?

Before deciding to leave your 401(k) assets where they are or choosing to transfer the assets to an IRA when you retire, it is critical to fully assess the pros and cons. Your local America’s Tax Solutions professional is a retirement distribution specialist and can help you evaluate your situation including information about safe, alternative options.

*A 20% mandatory withholding applies to lump-sum distributions from a 401(K). If you later decide to rollover that distribution within 60 days, you will not get the withholding back until tax time so you will have to add funds from other sources equal to the amount withheld.