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Asked 4/24/2009

How to close a 401k

I have been diagnosed with sleep apnea, which is a disability in the eyes of the state. I use a CPAP machine at night so I breathe properly. My question is, since I cannot continue in my career as a CDL driver because the condition will not allow me to pass a DOT physical, are there any provisions for someone diagnosed with a disablility? I will be entering vocational re-training, and could use the money to start my life over.

 
 
 
 
 
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Answer 1/6 - Submitted 4/28/2009

You can withdraw the funds, once you leave employment with the company that you have the plan with.. (usually) However since it does not sound as though you are considered PERMANENTLY disabled.. you will have to pay tax and penalty on the amount you withdraw...
Contact the aministrator to see if withdrawal is imediate following your separation from the employer, or if there is a wait period.

 
 

Answer 2/6 - Submitted 4/28/2009

No, I am not permanently disabled, but I could really use the funds to start my life over again. They supposedly reconcile the accounts at the beginning of the year, but I have been told there were "changes made" in regard to accounts by the government, so I have not even begun to close it yet. The controller at the company has been very limited in regard to disseminating information about the process. I will be closing it permanently, and was hoping not to get nailed twice by the IRS for taxes owed on it. Upon withdrawal, and as income for the fiscal year of withdrawal. However, I will be enrolling in school possibly for the Summer term, but definitely by Fall through the NYSED, as I can no longer hold a CDL or operate CDL vehicle with this "respiratory dysfunction" according to FMSCA guidelines. Will that change something as well? The situation is a bit complex...

 
 

Answer 3/6 - Submitted 4/28/2009

Unless they were post tax contributions-- (probably not) you will have to pay the tax, and report it on a 1099r--- even if you were completely disabled.. (that just avoids the extra 10% penalty)
It sounds like a balance forward plan, where the employer (or board) controls the funds.. not an administrator... This is a bit more complex... you still should be able to close as you are no longer working there.. however they usually do make you wait until all year end accounting is done... Check the plan document (summary plan document or SPD)--- they must furnish you with one if you ask...
This will outline all the plan provisions that they must follow.... each plan is unique and employers have a lot of different options as far as payout and timing.. that will give you the best information....


There were no extraordinary changes made to 401(k)'s recently.. so I would ask for some clarification there...

 
 

Answer 4/6 - Submitted 4/28/2009

So I guess the only real question now is how becoming a student will affect my tax situation.

 
 

Answer 5/6 - Submitted 4/28/2009

There are several credit available for tuition..
Both for federal and most states... keep track of all expenses related to schooling...
Good luck!---

 
 

Answer 6/6 - Submitted 4/28/2009

Thanks, I apprecitate the well wishes!

 
 
 
 
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