Unemployment and early pension distributions

[skenned3]

What is the name of your state? NY.

I am looking at losing my job due to downsizing around July 2007. I will turn 55 in October 2007. If I elect to take early distribution of my 401K at the time of dismissal will the exception for the 10% penalty take affect? In other words, do you actually have to be 55, or just 55 in the year you lose your job to qualify for the exception? If I take an early distribution on my rollover IRA, as well as my 401K, to offset debts while unemployed will this affect my unemployment insurance benefit? To make it on unemployment I would have to reduce my outstanding debt. I realize there is a 10% penalty on the rollover, as well as income taxes on both distributions. Would it be better to file for unemployment insurance, see how it goes and then cash out the pension money if I am desperate? Thanks-scared, broke and old in New York.

 

[ShyCat]

There's no 10% early withdrawal penalty from a 401(k) if you terminate employment in the year you turn 55 or later. So as long as your employment ends after January 1, 2007, no penalty on 401(k) withdrawals since you turn 55 in 2007.

IRA withdrawals are subject to the 10% early withdrawal penalty unless you are 59 1/2 years old or older (based on actual birth date, not just "sometime that year"). You can withdraw funds from an IRA before age 59 1/2 without penalty if you set up "Substantially Equal Period Payments", aka "SEPP". If interested in that, go here for more information...

http://72t.net/

 

[Beth3]

Another source of information available to you is the investment advisor for your employer's 401(k) Plan. No, they won't advise you on unemployment benefits but they can assist you with some retirement financial planning and advise you on various options you have such as the tax issues if you take a full or partial distribution of the funds, roll-overs into an IRA, purchasing an annuity, etc.

Ask your benefits person at work to put you in touch with the proper person at the investment advisor's to schedule a time to meet and discuss your options.