So you’ve saved for retirement your whole life, and now you want to cash in. While experts often discuss the fundamental advantages of 401(k) investments, the 401(k) withdrawal process flies under the radar.
How you do it depends on your employer’s specific plan. Kiplinger’s Sandra Block has more:
Two-thirds of large 401(k) plans allow retired participants to withdraw money in regularly scheduled installments—say, monthly or quarterly. About the same percentage of large plans allow retirees to take partial withdrawals whenever they want, according to the Plan Sponsor Council of America (PSCA), a trade association for employer-sponsored retirement plans.
Other plans offer just two options: Leave the money in the plan without regular withdrawals, or take the entire amount in a lump sum. (Check your 401(k)’s summary plan description, which lays out the rules, or call your company’s human resources office.) If those are your only choices, your best course is to roll your 401(k) into an IRA. That way, you won’t have to pay taxes on the money until you start taking withdrawals, and you can take money out whenever you need it or set up a regular schedule.
If your company’s 401(k) allows periodic withdrawals, ask about transaction fees, particularly if you plan to withdraw money frequently. About one-third of all 401(k) plans charge retired participants a transaction fee, averaging $52 per withdrawal, according to the PSCA.
Ask your plan provider for more details. They not only explain the withdrawal process (and the fine print), but also the benefits or downsides of withdrawing now. It may pay off to wait three months and withdraw then.