401k 72(t) early distributions questions?

Question

I know this is a complicated subject, but help from knowledgeable people would be appreciated.

1. Say I set up the proper 72t distributions and at age 59.5, there was still a lot of money in the account. Is this money handled normally from then on out (i.e. the normal withdrawal rules associated with the 401k as if I never did 72t distributions)?

2. If I am in the middle of a 72t distribution plan, could I still withdrawal more funds (subject to the taxes + 10% penalty on the withdrawn money of course)?

3. If I'm in the middle of a 72t distribution plan, and I get a new job with a 401k plan, could I contribute to that plan as normal?

Thanks.

Answer 1

1.  Yes, as long as you have received the payments for a minimum of five years.  You can discontinue the periodic payment schedule and proceed normally.

2.  Yes, anyone over age 59.5 who takes a 401k distribution is not subject to the 10% penalty.

3.  Yes, there is no upper age limit set by the IRS for 401k contributions.

Answer 2

1)  depends...once you start the 72(t) distributions you have to continue for 5 years or to age 59 1/2 whichever comes last.  Once you get past that period then you continue handling normally as you suggest.

2)  not from that account.  You will likely taint all of the distributions and cause the 10% penalty to be applied retro to all prior distributions.   You could possibly apply for a private letter ruling if it was due to certain unforseen circumstances (ie natural disaster on scale of Katrina)....but not for general expenses.  One thing you can do is switch from one calculation method to another (one time) so if you're initially using the minimum distribution method (lowest payout) you could switch to the amortization method and start receiving more money in your distributions but you can't do a lump sum withdrawal in addition.

3)  yes

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Edit  ---these rules are incredibly complex as you can tell from the variation in answers.  Nina's Gma and I disagree on whether you can vary from your set up.  I'm not going to say that she's wrong, just that my position is more conservative.  My position is you can't deviate from the equal and substantial payments in any way once they start.  Whichever route you choose make sure that you have your support in writing from a professional who's insurance will provide support in the event their professional opinion is wrong and the IRS comes knocking.

Answer 3

I think you really need to speak with your 401(k) administrator. You are right - it is a complicated subject and not all plans are the same. You need to go to the horse's mouth.

Good luck.