Ted's Table

TB: You're correct that the person leaving the employer after age 70½ has until April 1st of the year following termination to receive the required minimum distribution.

TB: Whether you are subject to the early withdrawal penalty depends on the age you are when you leave your employer, not on the amount of your other taxable income during the year you receive the distribution. The lump-sum distribution will be fully taxable and the 10% penalty tax also will be payable if you leave the employer prior to age 55. Of course the amount of total tax due will be reduced if you have no other income.

TB: Most 401(k) plans permit you to take your money any time you want after you leave the company. However, it's also legally permissible to require that the money stay in the plan until you reach retirement age. You need to check with your former employer to see whether distributions prior to retirement are permitted.

If you're permitted to withdraw your money, how long it will take to get it will depend upon the administrative structure for your plan. It could take only a few days after you submit the applicable paperwork, or it could take months. You should ask the person who oversees the plan of your former employer.

You should roll the money directly into an IRA where you pick the investments you want. If you don't roll the money over, it will be fully taxable plus a 10% penalty tax will be imposed if you were under age 55 when you left the employer.

TB: The after-tax money may not be rolled over. Your husband should take this portion as a cash payment and invest it for his retirement in a non-tax-sheltered vehicle outside the plan or an IRA. For example, he could invest the taxable (pre-tax) portion in several mutual funds by establishing an IRA rollover account and he could invest the after-tax portion in the same mutual funds by opening a personal account with the same fund company. He can, of course, invest the two portions with different financial organizations if he prefers.

Your husband won't have to pay tax when he receives the after-tax portion because he has already paid tax on this money.

As a last point, any portion of the distribution that is taxable, including investment gains on after-tax contributions, may be safely rolled over into the IRA.

TB: Your ultimate tax liability is established when you file your tax return, not when you have taxes deducted from your pay. If your employer is withholding more taxes than what is required, you will receive a refund when you file your tax return. You may ask your employer to reduce your tax withholding if more taxes are being deducted than what you think is required.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Ted's Table

TB: You're correct that the person leaving the employer after age 70½ has until April 1st of the year following termination to receive the required minimum distribution.

TB: Whether you are subject to the early withdrawal penalty depends on the age you are when you leave your employer, not on the amount of your other taxable income during the year you receive the distribution. The lump-sum distribution will be fully taxable and the 10% penalty tax also will be payable if you leave the employer prior to age 55. Of course the amount of total tax due will be reduced if you have no other income.

TB: Most 401(k) plans permit you to take your money any time you want after you leave the company. However, it's also legally permissible to require that the money stay in the plan until you reach retirement age. You need to check with your former employer to see whether distributions prior to retirement are permitted.

If you're permitted to withdraw your money, how long it will take to get it will depend upon the administrative structure for your plan. It could take only a few days after you submit the applicable paperwork, or it could take months. You should ask the person who oversees the plan of your former employer.

You should roll the money directly into an IRA where you pick the investments you want. If you don't roll the money over, it will be fully taxable plus a 10% penalty tax will be imposed if you were under age 55 when you left the employer.

TB: The after-tax money may not be rolled over. Your husband should take this portion as a cash payment and invest it for his retirement in a non-tax-sheltered vehicle outside the plan or an IRA. For example, he could invest the taxable (pre-tax) portion in several mutual funds by establishing an IRA rollover account and he could invest the after-tax portion in the same mutual funds by opening a personal account with the same fund company. He can, of course, invest the two portions with different financial organizations if he prefers.

Your husband won't have to pay tax when he receives the after-tax portion because he has already paid tax on this money.

As a last point, any portion of the distribution that is taxable, including investment gains on after-tax contributions, may be safely rolled over into the IRA.

TB: Your ultimate tax liability is established when you file your tax return, not when you have taxes deducted from your pay. If your employer is withholding more taxes than what is required, you will receive a refund when you file your tax return. You may ask your employer to reduce your tax withholding if more taxes are being deducted than what you think is required.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.