Should You Delay Your 401(k) Payout?

One other thing to keep in mind is that this exception from the age 70 distribution rule applies only to a retirement plan sponsored by an employer you currently work for. If you hold money in a traditional IRA or a retirement savings plan maintained by a former employer, then the minimum required distribution rules apply to those accounts.

Provided you meet the above conditions, continuing to work into your 70s and contribute to a 401(k) or other employer-sponsored retirement savings plan will go a long way toward making up for the past year's investment losses.

One strategy you and others might consider would be to work part time in a job that offers a 401(k) and allows delayed withdrawals for those over 70. This way you continue to enjoy the advantages of tax-deferred investing, but you work at a schedule that's to your liking.

It's not a realistic strategy for everyone, but if it works for you, it can provide a terrific financial advantage.

For more information, check out the Tax on Excess Accumulation section of IRS Publication 575: "Pension and Annuity Income."

Question: I rolled over my 401(k) when I left the work force eight years ago, into a 10-year, fixed annuity. When I turn 65, I will be able to start drawing on that annuity. Can an annuity be cashed out at that time or is it better to draw on it? Knowing what is happening now, I think I made a good choice.
--S.C., Paris, Tenn.

Answer: You may be able to cash out the entire balance upon reaching age 65, depending on how the annuity contract is written. However, that's not something I would recommend generally. The reason is that you would then be taxed on the full amount, assuming you funded the annuity entirely with 401(k) funds.

If the annuity balance is a substantial sum, then withdrawing it all at once could push you into a higher tax bracket, forcing you to pay more taxes than necessary.

Unless you need the entire amount right away, it would be better to draw from the annuity over time so as to limit the tax hit.

For more information on taxation of annuities, you also should check out IRS Publication 575.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at

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