Hi There Experts,
I was laid off on 8/25/23 and I have been with my ex employer for just over 2 years. neither my 401K/Roth 401K is 5 years old, and I'm under 59.5 years.
My goal is to legally avoid paying the 10% early withdrawal penalty.
I was told (by a rep of the plan admin) that I have multiple options:
1. Leave everything as is until I'm at retirement age
2. Direct rollover to my next employer's 401K/Roth 401K (who knows if and when this will happen!)
3. Take a lump sum cash out and pay taxes (on the 401K portion) and a 10% penalty (on all funds)
4. Take installment distributions over my life expectancy (say for the next 20 years), and I have the option to determine the frequency of the installments (annually, semi annually, quarterly, or monthly).
I got interested in option #4, and I asked if I'd still pay the 10% penalty for early withdrawal. The rep said, "We will withhold the taxes on the taxable portion of your installments (20%), but we will not withhold the 10% early withdrawal penalty. But, I guess since you are not 59.5 years old, you'll have to pay it anyway when you file your 2023 taxes. And you'd better ask a tax advisor to confirm".
So here I'm asking the experts. What do you guys think? Was the representative correct? And what would you advise me to do to avoid paying that penalty?
Thank you so much for your help and insight!
Mike
