401k / IRA alternative to early withdrawl?


K

kinglerch

This doesn't necessarily apply to me but is more of a hypothetical
question. In most cases the 401k and IRA funds are tied up until the
age of 59.5 as there is a 10% penalty for early withdrawal. Is there an
insurance or bank funded alternative?

Let's say someone is 50 and has $1,000,000 is in a 401k plan but
doesn't want to pay 10% to take any of it out early. Can they take
out a loan, annuity, or [insert name here] at less than 10% for 10
years and then pay the amount back once the 401k is no longer subject
to the 10% penalty? Is there a name for something like this? Are there
other alternatives?
 
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L

litterbug

Depending on how the 401k documents were written, they may be able to
"borrow" from it, usually at no or very low interest rates.
If they've retired, they can start to withdraw money at any age under
IRS section 72(t) - Substantially equal Periodic Payments.
I too would be interested in any other alternatives, such as factoring.
 
D

Dave

For a 401(k), if you separate from service with the sponsor of the
401(k) plan during or after the year in which you attain the age of 55
years, there is no 10% penalty for withdrawals. If you should roll the
401(k) over into an IRA, penalties continue until age 59-1/2 unless you
elect "substantially equal periodic payments" lasting the longer of 5
years or until you reach age 59-1/2.

Dave
 
C

Charlie K

With a very few exceptions, loans using the 401k as security (as
opposed to borrowing from the 401k) are illegal. So you can't do
factoring or the OP's suggestion.
 
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N

Nashville Pete

There is one possible option if you are investing in your own
business....Entrepreneur Rollover Stock Ownership Plans (ersop).
 

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