Retirement Topics - Distributions (when, how much)
When may a participant take money from a qualified plan?
Participants should consult their summary plan description for the specific events or times they are entitled to receive benefits from the plan. The plan may require a reasonable period of time after the event occurs to calculate the benefit and determine the payment schedule, or to value the account balance and to liquidate any investments in which the account is invested.
The following are a few general rules about possible distribution events from different types of plans:
Defined benefit plan or a money purchase plan: The plan will set a normal retirement age, which is generally when the participant will be eligible to receive his or her vested accrued benefit. These types of plans may permit earlier payments, either by paying:
- early retirement benefits, or
- benefits when the participant terminates employment, is disabled or dies.
401(k) plan: The plan may permit distribution of a participant’s elective deferrals when he or she:
-
terminates employment,
-
retires,
-
dies,
-
becomes disabled,
-
reaches age 59½, or
Profit-sharing plan or a stock bonus plan: The plan may permit distributions of a participant’s vested accrued benefit after he or she:
-
terminates employment,
-
becomes disabled,
-
dies,
-
reaches a specific age,a stated event, such as hardship, or
-
after a specific number of years have elapsed (no less than 2).
When can an individual withdraw IRA assets?
An individual can withdraw his or her IRA assets at any time. However, as with distributions from other plans, a 10% additional tax generally applies if he or she withdraws IRA assets before he or she is age 59½.
An individual generally can make a tax-free withdrawal of contributions if he or she does it before the due date for filing his or her tax return for the year in which the individual made the contribution. This means that, even if the individual is under age 59½, the 10% additional tax may not apply.
Additional Resources:
Publication 575, Pension and Annuity Income
Publication 590, Individual Retirement Arrangements (IRAs)
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Publication 554, Tax Guide for Seniors
How much to withhold - Withholding 20% for tax does not apply to all retirement plan distributions, Retirement News for Employers - Summer 2011
