401K Distributions

L1: 401K DistributionsCan you clarify a statement I have read in this morning”s paper. It said that under IRC 72(t) (2)(A)(v) that distributions before age 59 1/2 from a qualified plans [like one”s 401K and not from an IRA] are not subject to the early withdrawal penalties if the employee has separated from service and reached age 55.
Question1: Would one have to had worked at the company until s/he is 55 and then separated from the company to qualify for this exception? or does the case where one been separated [e.g., as a result of being downsized] from a company [at age 53] and is now almost 55 [this year] qualify for the exception?
Question 2: In this exception,does the age 55 mean a) will turn 55 in the calendar year or b) musthave reached his/her 55th birthday?
Question 3: Does this exception only apply to those companies [with 401K plans] who want to provide for this exception or are all companies [with 401K plans] required to provide this exception?
Thanks for your assistance and thanks for providing this great web site as a forum for discussions on 72(t).
Peter
2003-02-16 11:09, By: Peter, IP: [127.0.0.1]

L2: 401K DistributionsThe exception that you are talking about is also listed under the Exceptions page in the left menu.To be eligible for the exception, the distribution must be made to an employee after separation from service during or after the year in which he attained age 55.
Q1 = No.Q2 = the year in which he attained age 55Q3 = All Companies
2003-02-16 11:28, By: Gfw, IP: [127.0.0.1]

L2: 401K Distributions1) I”m sorry I put two questions in the first question. Does your answer [No} apply to the first question in number 1 or the second question innumber 1? It appears in reading the exception in the left margin, one has to have been separated from one”s company after the year one obtains the age of 55 to have this exemption apply. Please confirm.
2) Alsoif a company does have a 401K plan, are they required by law to provide this distribution exceptionto employees that qualify age-wise? [I have heard from others that my previous employers[with which I havemy 401K plan with]only allows distrbutions if you”re 59 1/2; although one can take the whole sum and either roll it over to an IRA or take it as a distribution to one self.].
Thanks, Peter2003-02-16 19:35, By: Peter, IP: [127.0.0.1]

L2: 401K Distributions1) I”m sorry I put two questions in the first question. Does your answer [No} apply to the first question in number 1 or the second question innumber 1? It appears in reading the exception in the left margin, one has to have been separated from one”s company after the year one obtains the age of 55 to have this exemption apply. Please confirm.
In order to qualify for the “seperation of service” exception (as defined by IRC 72(t)(2)(A)(v)) one must actually seperate from their employer (who is the plan sponsor) during the same calendar year in which they attain the age of 55.
2) Alsoif a company does have a 401K plan, are they required by law to provide this distribution exceptionto employees that qualify age-wise? [I have heard from others that my previous employers[with which I havemy 401K plan with]only allows distrbutions if you”re 59 1/2; although one can take the whole sum and either roll it over to an IRA or take it as a distribution to one self.].
Independent of the above response, a plan sponsor is allowed (within certain guidelines) to draft a 401(k) plan as they see fit. As a result, many plan sponsors draft plans that do not support early periodic payments or don”t support periodic payments at all; thus only allowing a single or very limited series of payments that are a lump sum. As a result, one might seperate from their employer at age 55 and want to avail themselves of the “seperation of service” exception but are unable to do so based upon how the plan was drafted. Unfortunately, there is little that can be done in this instance.
TheBadger
wjstecker@wispertel.net

2003-02-16 20:06, By: TheBadger, IP: [127.0.0.1]