10% penalty

L1: 10% penaltyIn 2000 I retired at age 50 receiving a lump sum pension. I rolled this along with my 401k into 3 separate and distinct IRAS and started a SEPP on one of the 3 IRAS. Two years later I went back to work with the same employer. Now after 5 years back I am going to reretire at age 57. I have about 150k in the 401k that I accumulated over 5 yrs since I returned in 2002 and will also receive an additional 40k lump sum pension benefit. From your site I realize that I will be able to tap into that 401k with no 10% penalty as I will be over 55 when I retire. My question is on the 40k lump sum pension payout. Would this be subject to a 10% penalty or just taxes. Thanks for all the great info over the years. I read your site 2-3 times per week since 2000 when I set up my SEPP.2007-07-18 11:31, By: Ed, IP: [71.225.31.86]
L2: 10% penaltyDistributions from your 401-k after 55 and separation from service are not subject to the 10% penalty on those periodic or lump-sum distributions. You are just subject to the regular income taxes.Before taking the lump-sum distribution, check with HR/Payroll to determine if there is company stock in the 401-k or pension account. If so, research the very favorable NUA (“Net Unrealized Appreciation”) provisions of the tax code. J.K. Lasser “Your Income Tax” has an excellent 2-page summary.2007-07-18 14:19, By: dlzallestaxes, IP: [4.175.9.32]

L2: 10% penaltyThis is to confirm that in addition to the 401k account, your 40k defined benefit pension lump sum is also free of penalty under the age 55 exception due to separation from service. In the event there was enough NUA to consider in the 401k despite the contributions going back only 5 years, the cost basis of those shares would also escape the penalty under the age 55 exception.
Am sure you are on top of this, but if you do the IRA transfer, you need to be absolutely sure your custodian does NOT deposit the funds into your 72t account. This has happened before, despite the best efforts of the taxpayer. You might even want to do the rollover into an entirely NEW account # just to reduce that risk even further. After the 72t is done, you could then combine them.2007-07-18 17:07, By: Alan S., IP: [24.116.66.98]