The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: UnleashHell on September 19, 2024, 09:04:43 AM
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not related to RMD's is it allowed for an Employer to enforce a minimum amount to withdraw from a 401k? as in the minimum to be withdrawn upon retirement must be at least say $35,000.
I can't find anything that relates to it either for or against. everything i'm seeing related to RMD but this is not that question. I'm referring to taking money out at say age 58..
thank you!
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They can place all kinds of rules on withdrawals, especially pre 59.5. This isn't one I had heard of, but is actually reasonable from an admin perspective (ie, avoiding lots of small transactions).
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They can place all kinds of rules on withdrawals, especially pre 59.5. This isn't one I had heard of, but is actually reasonable from an admin perspective (ie, avoiding lots of small transactions).
that's not the answers I wanted!!! lol.
I understand why they'd do that but why have such a large amount? can it be challenged as unreasonable?
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They can place all kinds of rules on withdrawals, especially pre 59.5. This isn't one I had heard of, but is actually reasonable from an admin perspective (ie, avoiding lots of small transactions).
that's not the answers I wanted!!! lol.
I understand why they'd do that but why have such a large amount? can it be challenged as unreasonable?
Considering that they could tell you no withdrawals until 59.5, I doubt this is legally unreasonable.
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Is there any reason you can't roll over into an IRA? That would solve the minimum withdrawal issue.
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They can place all kinds of rules on withdrawals, especially pre 59.5. This isn't one I had heard of, but is actually reasonable from an admin perspective (ie, avoiding lots of small transactions).
that's not the answers I wanted!!! lol.
I understand why they'd do that but why have such a large amount? can it be challenged as unreasonable?
can you just roll it over to an ira?
or are they forcing a taxable event?
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its not for me - its for the boss lady!
I guess she could roll to an IRA but if its stays where it is then theres no extra tax penalty for the next few years - but the current minimum threshold is very high and seems excessive. Its above the threshold for taxation so it would force her to pay tax unnecessarily.
after 59.5 then rolling to an IRA takes away the amount issue but its the 55 to 59.5 that's the issue.
secondary problem - they also state that no retirement access until 55 - not the year that she's 55. not sure that's enforceable - anyone come across that before?
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Do you have Roth accounts?
You could roll to Roth IRA and start a conversion ladder while pulling out contributions. This effectively gives you access to your traditional funds, if you have enough in Roth contributions/ older conversions to get you started.
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If her withdrawals have to be bigger than she needs, is there at least the option to stretch out the time between when those withdrawals happen? Or will her employer’s plan try to force some sort of annual timing to it as well?
My company has a different PITA problem for Rule of 55. They force rollover to IRA when you retire, so if you are over 55 you get only one Rule of 55 distribution.
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Boss-lady?
Is she still working there? They may be applying restrictions as an in-service withdrawal. Restrictions can be up to not allowed.
https://www.investopedia.com/terms/i/inservicewithdrawal.asp
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The amounts are larger than she'd want to take. and it'd be anytime, not just in service.
Roth is a possibility. as there are funds available to make it happen - or just switch the funds to a vanguard account when hitting 59.5
The other option is to get them to change the minimum amount. it was set up as they are a small organisation and they didn't want to have to pay the fee for small monthly distributions.
They may be open to changing the rules.
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its not for me - its for the boss lady!
I guess she could roll to an IRA but if its stays where it is then theres no extra tax penalty for the next few years - but the current minimum threshold is very high and seems excessive. Its above the threshold for taxation so it would force her to pay tax unnecessarily.
after 59.5 then rolling to an IRA takes away the amount issue but its the 55 to 59.5 that's the issue.
secondary problem - they also state that no retirement access until 55 - not the year that she's 55. not sure that's enforceable - anyone come across that before?
She could also consider a 72(t) aka SEPP. They work well for someone who's approximately 55 when starting and has a reasonably well known or somewhat well known amount of spending for the required SEPP period (age 59.5 or 5 years whichever is longer).
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With one withdraw year, you could take what you need and do an indirect rollover to IRA with the remainder.
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I'm fairly sure she could take whatever withdrawal she's required to, keep what she wants to spend and roll the rest over to an IRA as an indirect rollover. Unlike an IRA to IRA indirect rollover I don't even think this is limited to one per year, although she'd want to find confirmation for all of that.
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I'm fairly sure she could take whatever withdrawal she's required to, keep what she wants to spend and roll the rest over to an IRA as an indirect rollover. Unlike an IRA to IRA indirect rollover I don't even think this is limited to one per year, although she'd want to find confirmation for all of that.
The IRS rollover chart agrees with you:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf