Q&A Episode: 401Ks, IRAs, and Early Retirement, Ep #66 

<p>If you roll over your old 401k from a former employer, does your match apply? Can you get around the 10% early withdrawal penalty? If you retire early, should you defer your social security benefits? I answer these questions—and more—in this Q&A edition of the Retirement Made Easy podcast! </p> <h2>You will want to hear this episode if you are interested in...</h2> <ul> <li>[4:18] 401k rollovers, matching, and vesting schedules</li> <li>[8:10] Can you get around the 10% early withdrawal penalty?</li> <li>[11:52] Does the 10% early withdrawal penalty apply to beneficiary IRAs?</li> <li>[16:14] When to claim social security if you’re retiring early</li> </ul> <h2>401k rollovers, matching, and vesting schedules</h2> <p>If you roll over your old 401k from a former employer, does your match apply? Let’s say Jennifer has $1 million in a former 401k and rolls it over to her new 401k that offers a 5% match. She was told she’d get the $50,000 match on the amount rolled over. Unfortunately, the match does not apply to rollover money, only current contributions from your paycheck while working for the new company. When Jennifer earns $100,000 at the new company, they’d match $5,000.</p> <p>The most common vesting schedule is 20% per year over five years. A typical matching schedule will be 20% the first year, 40% the second year, 60% the third year, until they match 100% in the 5th year. So if you leave the job in year two, you’d only be able to keep 20% of what was matched. This is in place to incentivize people to stay with their company long-term. </p> <h2>Can you get around the 10% early withdrawal penalty?</h2> <p>If you withdraw money from an IRA or 401k before you turn 59 ½, you can get hit with a 10% penalty. If you’re 58 and want to retire early, the only way to do it without the penalty is if you have a special exception such as a disability or medical expenses. The other exception is called a 72-T. It forces you to draw out equal amounts over 5 years or until you turn 59 1/2. </p> <p>However, there is more fle