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You must begin taking
distributions from your 401(k) plan by April 1 of the calendar year following the calendar
year in which you turn 70 ý. Otherwise you will be liable for a penalty of up to 50% of
what you should have taken out, but didn't. An exception is made if, at age 70 ý, you are
still working for the employer who sponsors your 401(k) plan. In that case you are
required to start taking distributions by April 1 of the calendar year following the year
in which you retire.
Once you retire, you have the option of leaving your account with your former employer,
providing there is more than $5,000 in it. There is no requirement for you to close the
account as long as your former employer continues to sponsor it.
If for some reason your former employer were to stop sponsoring the 401(k) plan, you could
either take a lump sum distribution or roll the account over into a rollover IRA. If you
took a lump sum distribution you would have to pay tax on the entire amount, but you might
be able to spread it over 5 or 10 years. If you rolled the money over into an IRA you
would not have to pay taxes until you withdrew the money.
It would be a good idea to contact the appropriate tax/estate planning and investment
professionals for advice in this situation. |
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