FDX OSP account withdrawals
 

I'm 50 years old and considering withdrawing some funds from my after-tax retirement account (formerly known as the optional savings plan, or OSP). The Pilot Benefit Book states that a "10% additional excise tax on early withdrawals may apply."

Does anyone have any experience with this? Since the contributions are deposited into this account on an after tax basis it seems to me that you could withdraw any amount and only have to pay taxes on the earnings. I'm just trying to figure out if there is an additional penalty involved as well.

If there is an additional tax penalty on OSP withdrawals, then what is the advantage of contributing to this plan versus simply contributing directly into another taxable mutual fund of your choice (outside the plan) where no such withdrawal penalty is imposed?

It's been awhile since I've done it, but at the time you could "borrow" up to $50,000 from your account and pay it back through payroll deductions over 5 years at 6% interest. The numbers may not be exact but that's the general idea. Also, the money had to be for specific uses like tuition, home additions, etc. I don't remember who I called to set it up, but I would guess Vanguard.

I just looked on the website, it is 3% and you can do it on line.

I emptied my OSP last year without having to pay any extra taxes. Here's how it works.

Suppose the value of your OSP is $150K and that $100K of it is money that you contributed to your OSP with after tax dollars. Let's suppose that the other $50K is gains due to your investment choices. You may withdraw all of the money that you contributed (the $100K) with no tax consequences. Vanguard will send you a check.

You can also roll the gains ($50K, in my example) into an IRA or leave it where it is. The penalties apply when you try to do something with the gains other than roll it over to another IRA.

This worked for calendar year 2010. It would be wise to call Vanguard and ask what the current rules are.

That's only borrowing againtt the 401k. OSP is different than 401k, though they are all lumped together in the Retirement Savings Plan. The OSP contributions can be withdrawn without tax hits. It's all on Vanguard. You apply online and you can see what you can take out before hitting the submit button.

If you can't find it or have trouble, just call Vanguard and they can explain it all and help.

Thanks MaddDogg.

My situation is surprisingly similar to yours, except that I'm not going to be withdrawing everything from my account and the Vanguard rep I spoke with yesterday told me that the check that they would send me would represent a withdrawal of a combination of my original contriubutions (~2/3's) and my earnings (~1/3). He said I'd have to pay taxes on the earnings AND that an additional 10% penalty MIGHT apply. I'm thinking that he was simply quoting the part about the penalty straight from the plan rules (the same thing our Pilot Benefit Book says). From your post I'm thinking that no penalty would apply. It would, of course, be nice if I could just withdraw original contribution funds and leave the earnings in the account, defering the taxes until later.