I’ll assume you are under age 59 1/2 since you are asking about the 10 percent penalty.įor the 10 percent penalty, each conversion starts its own five-year clock, beginning on Jan. Also, once your funds are in your IRA, you can take your RMDs all from that IRA rather than having to take RMDs from each of your 401(k)s.Ī: The 10 percent early distribution only applies to IRA distributions taken before reaching age 59 1/2. ![]() If you are no longer working and you want to consolidate your retirement funds, you might want to consider rolling both of your 401(k)s into an IRA so you have all your retirement funds in one place where you have more control over investments and withdrawals. The tax law allows you to combine the 401(k) funds by rolling one into the other, but 401(k) plans do not have to allow incoming rollovers. That said, for simplicity’s sake it’s a good idea to combine the two accounts, but you cannot do that unless one of the 401(k)s will allow you to roll the funds into it from the other 401(k) (excluding any RMD which, again, cannot be rolled over). Also, RMDs cannot be moved to another company 401(k) or IRA through a rollover. Both RMDs cannot be paid from one 401(k). If you are no longer working for either company, then you are subject to separate RMDs from each 401(k). This so-called “still working” exception to taking RMDs is not available for IRAs or other 401(k)s from companies you are no longer working for. This means you generally don’t qualify if the 401(k) is for your own business. That exception to taking RMDs is only available from your 401(k) if you are still working for that company and you don’t own more than 5 percent of the company stock. This does not sound like a good plan, unless you have no other non-IRA funds to use or you have a large enough IRA to provide you with income even after a withdrawal to buy the home.Ī: First, since you are 73 years old, you are subject to RMDs (required minimum distributions) each year, unless you happen to qualify to delay RMDs from your 401(k) plans. You could lose a third of those funds to taxes, depending on your tax rate, which will likely be higher due to the large IRA withdrawal to buy the home. That can be very expensive since you will owe taxes on the funds you withdraw. You said in your question that you will be using funds in your IRA to pay for the home. Regarding paying all cash for a home in retirement: It’s generally good not to have debt in retirement, but you will need to make sure you are not using funds you will need in retirement. If you choose tax withholding, you should estimate the amount you will owe and elect withholding for that percentage. ![]() But since you will likely owe tax on your IRA distribution, you will need to have the tax paid, either through quarterly estimated taxes or through tax withholding. You are not required to have taxes withheld on that distribution (you can opt out of any IRA withholding). However, if you withdraw from your IRA for any reason, you will generally have to pay tax on that distribution. That is only the case when you withdraw from your 401(k). A: There is no 20 percent withholding tax requirement for IRA distributions.
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