An option you can use to develop your retirement income plan while you work.


Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.
If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle that offers you income guarantees.

The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might be wondering how some of those assets would do in other kinds of investments, especially those with less risk exposure.

Today, you can find popular annuity investments that will allow you to take advantage of stock market gains while protecting your principal against stock market losses.
Many offer guaranteed lifelong income payments, as well as tax-deferred growth. You can pour as much money as you want into them – they don’t have annual contribution limits like a 401(k) or an IRA, and they don’t require you to take distributions at age 70½. They commonly let you allocate your assets across a mix of stocks, bonds and money market accounts for added diversification.1
With features like these, you may be interested in these investments if you are approaching retirement age.

The 72(t) strategy to avoid the early withdrawal penalty. If you are still working and pull money out of your 401(k) before age 59½, you will pay a 10% early withdrawal penalty plus income taxes on the money you take out.2 But you might be able to make early withdrawals with the help of IRS Rule 72(t).

Rule 72(t), based on life expectancy, lets you schedule fixed income withdrawals for five years or until you reach 59-1/2, whichever is longer.2 It lets you receive fixed, equal payments according to IRS calculations.

First things first: make sure you can do this. Talk with your employee benefits officer at work, and see that the Summary Plan Description (SPD) permits non-hardship withdrawals. Talk with your financial or tax advisor to make sure it is an appropriate move for you given your overall financial plan. If you know you’ll need more retirement income, there can be real merit to reinvesting early withdrawals from a 401(k) in vehicles that generate it.


1 [11/10/08]
2 [11/10/08]
3 [6/8/01]