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Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I just switched jobs and need to rollover my 401k. My new employer

Resolved Question:

I just switched jobs and need to rollover my 401k. My new employer does not offer a 401k plan, so I was planning to put the funds in a rollover IRA. I would like to take part as a lump sum distribution to use for a down payment on a home. I have not owned a primary residence in over 3 years. I will turn 55 in March of 2011. Is there any way I can take a partial lump sum distribution without incurring the 10% penalty?
Submitted: 4 years ago.
Category: Tax
Expert:  Jacy replied 4 years ago.
Chat Conversation Started
Jacy :

Hello,

Jacy :

Give me a minute to look something up for you

Customer :

let me know if you need more info from me...

Jacy :

Are you there?

Customer :

here

Jacy :

OK, if you take the money out before you are 55, you have to pay the penalty. You could roll it into an IRA, and then take up to $10,000 for the purchase of the home.

Jacy :

If you are married, both you and your spouse can not have had an interest in a primary residense for the two years prior to the purchase date.

Customer :

The rollover IRA company (Vanguard) just told me if I will pay a penalty on any funds withdrawn until I'm 59 1/2.

Customer :

Vanguard also mentioned a 72(t) exception, but it seems to apply more to regular distributions than lump sum, so I can't see how it applies to me. Do you think it may apply?

Jacy :

When you take the withdrawal, they will code it as an early distribution on your 1099-R. You can then use form 5329 to claim the exclusion to the penalty of up to $10,000 toward the purchase of your home.

Jacy :

I have not heard of that specific exception.

Customer :

So, I could take $20k, use form 5329 to claim an exception for $10k, and pay the 10% penalty on the remaining $10k?

Jacy :

Yes, that is correct.

Jacy :

There's no way to wait on the 401k distribution until you are 55?

Customer :

Can I leave the funds in my old 401k account for another 6 months, if my old employer doesn't object? are there rules about moving the money out once you've left a job?

Jacy :

Each plan has its own rules. Some companies don't require a distribution after separation from service. Ask your administrator if it can be delayed.

Jacy :

I will have to check if you must separate from service after 55 to qualify. be right back.

Jacy :

It sounds like you must separate from service in the year you reach 55, so that won't apply to you.

Customer :

ok - still can save $1k with the 5329 - so, thanks. bye

Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience: Nine years individual income tax preparation and consulting
Jacy and 8 other Tax Specialists are ready to help you

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