Discussion:Early withdrawal of retirement funds for higher education
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Discussion Forum Index --> Consumer Questions --> Early withdrawal of retirement funds for higher education
| 20 November 2008 | |
| One of the exceptions for the 10% penalty on early withdrawal of an IRA is when such funds are used for higher education costs. However, such exception doesn't apply to a qualified retirement plan such as a 401(k). It there any tax law which would prevent an individual from rolling over a portion of his 401(k)to an IRA, and then shortly thereafter using such funds for higher education costs, in order to avoid the 10% penalty? | |
| 20 November 2008 | |
| no, the problem would be the plan documents that might prevent an in-service distribution if the taxpayer is still working | |
| 20 November 2008 | |
| There is a bigger problem. To take a distribution while working you must generally demonstrate "hardship". Hardship withdrawals are NOT allowed to be rolled over. IRC ยง402(c)(4)(C)
It is unknown why Congress legislates these differences but your plan is not permitted. | |
| 20 November 2008 | |
| No problem if the taxpayer quits his job. Who wants to work and go to school at the same time anyway? | |
CarlLaFong (talk|edits) said: | 21 November 2008 |
| Have your client quit his job, or ask the employer to terminate the plan. The distribution can then be rolled into an IRA. | |
Lmcdon9822 (talk|edits) said: | 23 November 2008 |
| Depending on the 401(K) plan, you can roll over "in-service" funds to an IRA when the client is still working. | |
| 24 November 2008 | |
| Where I used to work, QWEST, the 401K does allow 'in-service' partial, total or hardship distributions. I don't see anything about trustee to trustee rollovers and it does say 20% required withholding, so, if you want to put it into an IRA you would either have to make up the 20% or payu taxes on it. | |
| November 24, 2008 | |
| See sec. 401(k)(2)(B). Amounts attributable to salary deferrals can't be distributed until the earliest of severance, death, disability, plan termination (without replacement), attainment of age 59 1/2, hardship or qualified reservist distribution. Other balances can be distributed earlier. | |
CarlLaFong (talk|edits) said: | 24 November 2008 |
| Okie1tax, hardship distributions are exempt from the mandatory withholding rules. Also, hardship distributions may not be rolled over. | |
| 25 November 2008 | |
| Qwest Savings & Investment Plan (QSIP) 401(K) - Types of In-Service Withdrawals - Regular Partial Withdrawal, you may withdraw a portion of your Account at any time while you are employed (a 'Partial Withdrawal') subject to the following rules: ...from the following sources in descending order... unmatched After-Tax contributions and earnings, if any, matched After-Tax contributions and earnings, if any, Rollover Account and earnings if any, Vested Matching Contributions and earnings, if any. You cannot take more that two (2) partial withdrawals in any plan year.....
Regular Full Withdrawal - You may withdraw funds from your account at any time while you are employed subject to..... you may withdraw the ewntire amount from your , After-Tax... Vested Matching Contributions Account.... Rollover Account... IF you are age 59 1/2 you may withdraw your Before-Tax Contributions and their earnings. Hardship distributions, as stated by others. | |
CarlLaFong (talk|edits) said: | 25 November 2008 |
| Yes, and your point is? | |
| 25 November 2008 | |
| You can withdraw from a 401(K) before age 59 1/2 while still with your employer. | |
| 25 November 2008 | |
| Hi I love it when our friend Kevin answers the question and everyone adds to it :) bye | |
| November 26, 2008 | |
| Yes, you can roll over from a plan that happens to also have a 401(k) feature while still with the employer, if the plan lets you.
No, you cannot withdraw and roll over any amounts subject to section 401(k) while still with the employer, under 59 1/2, alive, able-bodied, with the plan still in existence and not a qualified reservist, no matter what the plan says. | |
| 26 November 2008 | |
| Mainstay Funds' take | |
| November 28, 2008 | |
| The Code says one thing, and New York Life Insurance Company says another. If only there were some way to predict which of those a court is more likely to follow. | |
| 28 November 2008 | |
| sounds like the only argument is pre 59 1/2 deferred amounts. here is a good discussion | |
| 12 March 2009 | |
| I withdrew $ from my 401K for hardship-education. I am under 59 1/2-is this exempt from the 10% penalty? | |
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