Asked MMM, but asking here too...

[Quidnon?]

I understand that I can retire from my current company after turning 55 years old, and withdraw from that 401k without the 10% penalty.  However, I was wondering if I could retire from my high wage corporate job earlier than 55; then as I approach 55 get a part-time job at (as an example) Walmart, transfer qualified funds from my old 401k into Walmart's 401k, then re-retire after turning 55 and claim the same exemption with that Walmart 401k.  If so, is there a defined time period that those qualified funds must be in the Walmart 401k before they count?  I'm exploring another early retirement strategy, basically, and need some experienced insight.

[seattlecyclone]

I understand that I can retire from my current company after turning 55 years old, and withdraw from that 401k without the 10% penalty.  However, I was wondering if I could retire from my high wage corporate job earlier than 55; then as I approach 55 get a part-time job at (as an example) Walmart, transfer qualified funds from my old 401k into Walmart's 401k, then re-retire after turning 55 and claim the same exemption with that Walmart 401k.

I don't see why not. You would need to make sure that the new 401(k) plan would allow you to leave your money in the plan and take multiple withdrawals after you retire. Some companies have set their plan rules so that the only way to get your money out is as a lump sum; they don't want to deal with the administrative costs involved with retirees making a bunch of transactions, and would rather you just move your money to an IRA when you leave so they don't have anything to do with you anymore.

If so, is there a defined time period that those qualified funds must be in the Walmart 401k before they count?  I'm exploring another early retirement strategy, basically, and need some experienced insight.

I don't think there's any time period involved for traditional 401(k)s. For a Roth 401(k) there is a five-year period that you need to keep the account open before you can withdraw the earnings without penalty, however I believe that in the case of a rollover from one 401(k) to another the clock won't reset from the previous job.

[Quidnon?]

So, as long as the new company 401k won't kick me out if I quit, this plan should work?

[seattlecyclone]

Yeah, I don't see why not.

[Quidnon?]

Thanks!

[FLBiker]

Forgive me if this is a dumb question, but assuming the original corporation didn't kick you out of the 401K when you quit, couldn't you just leave it there and pull it out at 55 (and not work at Walmart)?

[dandarc]

The specific exception to the 10% early withdrawal additional tax being discussed requires you to separate in the year you turn 55 - so if you quit before then and wait till 55 and then withdraw, you'll still get hit with the penalty.

[Quidnon?]

Forgive me if this is a dumb question, but assuming the original corporation didn't kick you out of the 401K when you quit, couldn't you just leave it there and pull it out at 55 (and not work at Walmart)?

No, because someone tried it this way, and the court slapped her down.  The separation must occur after the 55th birthday for the '55 & out' rule to qualify, this much I know.  I'm looking at this as a work-around for that.

[secondcor521]

^ Correction:  The separation must happen in the year one turns 55.  So if one's birthday is in October, for example, one could retire in the spring at age 54.5 or so and still qualify.

There is no time limit, but it does take some time to move the money from the old 401(k) to a rollover IRA, and then from the rollover IRA into the new 401(k), so one would probably have to work for a few months.

The other potential limitation is that 401(k) plans are not required to accept rollover funds from prior employers.  In this example, you would want to make sure that Walmart accepted incoming retirement funds.  My former employer did, but I don't know how common or uncommon this is.

[RedwoodDreams]

^ Correction:  The separation must happen in the year one turns 55.  So if one's birthday is in October, for example, one could retire in the spring at age 54.5 or so and still qualify.

Correct, it's the year you turn 55. I know because this currently applies to me. And it must be retirement from the employer that holds your 401k.

[Quidnon?]

The other potential limitation is that 401(k) plans are not required to accept rollover funds from prior employers.  In this example, you would want to make sure that Walmart accepted incoming retirement funds.  My former employer did, but I don't know how common or uncommon this is.

Is there any way to check out the rules of a 401k in advance of applying for a job?  I've got no problem at all working part time for several months at a WalMart, Home Depot, etc.  Particularly one that is local to my intended retirement locale anyway.  Think of the money that avoiding that 10% penalty would save me over 5 years!  I'm guessing it would save me approximately $4K every year, or about $20K total.  Less if I use a Roth IRA conversion ladder in the meantime, but then I forego 4 or 5 years of potential market gains upon the portion of the conversion ladder that is taxed early.  I've seen analysis that suggests that simply withdrawing your money as you need it, and paying the 10% tax hit, is a reasonable & often ideal strategy.

[Spork]

I may be wrong, but I feel like you're missing something.  Why care about age 55?  Why care about rolling a 401k into another 401k?
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[Quidnon?]

I am aware of both the Roth IRA conversion ladder method, as well as the Substantially Equal Periodic Payments method.  Both have their advantages & disadvantages, of course, and I plan on converting a portion of my 401k into the Roth along the way regardless.  Mostly this idea occurred to me as an "opps, I need more than I thought I would" kind of back-up plan, should I need it.  If I'm retired for several years, then decide that I want or need a little extra income, I don't have to choose between taking a 10% hit or going back to work full time.  Instead, I can go back to work part time for a bit till the immediate cash flow needs have resolved, then claim the exemption for the transferred 401k funds.

[secondcor521]

The other potential limitation is that 401(k) plans are not required to accept rollover funds from prior employers.  In this example, you would want to make sure that Walmart accepted incoming retirement funds.  My former employer did, but I don't know how common or uncommon this is.

Is there any way to check out the rules of a 401k in advance of applying for a job?  I've got no problem at all working part time for several months at a WalMart, Home Depot, etc.  Particularly one that is local to my intended retirement locale anyway.  Think of the money that avoiding that 10% penalty would save me over 5 years!  I'm guessing it would save me approximately $4K every year, or about $20K total.  Less if I use a Roth IRA conversion ladder in the meantime, but then I forego 4 or 5 years of potential market gains upon the portion of the conversion ladder that is taxed early.  I've seen analysis that suggests that simply withdrawing your money as you need it, and paying the 10% tax hit, is a reasonable & often ideal strategy.

The only way to know for sure would be to read the plan documents, which are in the possession of the plan administrator, and usually only provided to employees.  If it were a make-or-break-it item in terms of whether you worked there or not, you could ask during the hiring process I suppose.  Another way would be to find a friend who already worked there and ask them to ask the question for you.