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Accessing 401(k) early?
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February 24, 2000: 5:06 p.m. ET
Ways to withdraw savings from your 401(k) plans without severe penalties
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NEW YORK (CNNfn) - For years employees pour money into their 401(k) plans, but when it comes to early retirement, would investors face harsh penalties for accessing retirement funds early?
In response to reader's e-mail question, Elissa Buie, a certified financial planner from Falls Church, Va. and a member of the Financial Planning Association, advises investors on how to avoid the punishment.
Ask the experts a question
I have a sizable amount in my 401(k) plan and think that within two to three years I will have enough to retire. At that time my age will be 56 to 57. My question is, if I retire at that age, will I be penalized on the amounts being withdrawn from the 401(k), and if so, how much in addition to the standard tax rate? Also, will the 15-year withdrawal plan still be in effect?
There are ways of accessing your retirement funds prior to age 59-1/2. One such way is through separation from service after attainment of age 55, where you would take a lump sum distribution from your employer account.
The taxes would be paid on the distribution, but no penalty would be incurred.
However, this precludes the further deferral of taxes by rolling the proceeds into an IRA and, therefore, isn't generally recommended.
What most people don't know, however, is that they can roll their retirement proceeds to an IRA upon their retirement, and then begin withdrawing funds immediately, paying only the taxes but no penalty, regardless of their age.
As long as they withdraw an amount each year that represents a series of substantially equal periodic payments made at least annually over the life or the life expectancy of the participant or the participant and a designated beneficiary.
These withdrawals can be made from an IRA even if you have accepted a job elsewhere or are earning income such as consulting or self-employment income. They must continue until after you turn 59-1/2 or for five years, whichever is longer. (There is no 15-year withdrawal rule, but I believe you may have been referring to this rule in your question).
So run the numbers to make sure you are going to be able to withdraw enough, but don't worry about having to pay penalties on distributions from a retirement plan even if you do plan to retire before 59-1/2. 
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