401K Distr”n @ Age 55–“Separation from Se

L1: 401K Distr”n @ Age 55–“Separation from SeI am a recently-retired self-employed individual who had a 1-man 401K. I intend to withdraw all of my funds (I”m 55) per Sec. 72(t)(2)(A)(v) due to my “separation from employment”.
But I am now seeing conflicting opinions on the Internet about whether former “self-employed” people count as “employees separated from service”.
Does anyone here have any authority one way or the other–particularly a Revenue Ruling? The Code talks about “employee”–but there is no logical reason why the self-employed should be considered left out…
Thanks in advance.
Jerry
2007-11-05 11:34, By: Jerry, IP: [68.13.1.58]

L2: 401K Distr”n @ Age 55–“Separation from SeJerry,
The 48 hour delay in response to this tells you that this is a tough one. I cannot find any specific ruling on this matter, and apparently none of the other posters has come up with anything authoritative either, or there would be a post. These solo K plans have only existedsince 2001.
It should be noted that the adoption agreements for solo K plans retain full definitions of employer and employee. You therefore have functioned in a dual capacity with respect to the plan document and also with respect to Sec 401 of the IRC. That does suggest that as an employee you can “separate from employment” as opposed to simply quitting business. While that logic may be comforting, it is strictly anecdotal to what position the IRS would take with respect to the age 55 exception, and is far from conclusive.
Unless someone comes up with an acceptable authoritative reference, I think it would be safer to transfer the plan to a TIRA and set up a 72t plan. In addition, if you withdrew all your funds from the solo K in a single year, your tax bracket would probably take a bigger hit than the 10% penalty.
If you want to check further with the plan administrator, ask them if they are willing to code your 1099R with the exception code “2” for the age 55 separation exception. This is what the IRS will look at.2007-11-07 14:53, By: Alan S., IP: [24.116.165.60]

L2: 401K Distr”n @ Age 55–“Separation from SeI agree with Allan – be careful.
The IRS will probably treat as a plan termination unless you are selling the business, become an employee of the new business, and then terminate employment after the sale.
If you are merely terminating the business and you have the ability as the owner to terminate the business,the IRSprobably will not consider it a separation from service.
Get good tax counsel before you make a potentially costly decision.
2007-11-07 15:27, By: Gfw, IP: [74.136.102.241]

L2: 401K Distr”n @ Age 55–“Separation from SeThanks guys.
Yeah, I don”t think there”s anything “definitive” out there on what to do in this situation. I was hoping you guys had something.
It”s only $30,000–so it”s not worth getting a private letter ruling, and not worth tangling with the IRS.
2007-11-07 19:31, By: Jerry, IP: [68.13.1.58]

L2: 401K Distr”n @ Age 55–“Separation from SeGood morning Jerry:
You”re right. For $30k it”s not worth testing the waters with the IRS to stay in the “Solo K-plan” environment. Process a trustee-to-trustee transfer to an IRA.
Now the good part about your situation is who will be the new custodian. Since you were in control of your plan, I will assume that you chose the investments and are satisfied with them. So all you need to do isprocess an “in-kind transfer” of the assets. That means you can transfer the stocks, funds, etc, directly from your “Solo K-plan” to the new IRA custodian …which may be the same custodian you are now using … without having to sell and repurchase the assets. This saves a lot of headache and sales / purchase costs.
Jim2007-11-14 07:29, By: Jim, IP: [24.252.195.14]

L2: 401K Distr”n @ Age 55–“Separation from SeHello, new guy here. My situation is similar to the original poster”s, and I am wondering if it is similarly murky re the Age 55 separation rule.
I am soon to turn 53 and one of twoemployees of a corporation. The other employee is my spouse. The corporation”s business is a form of professional services, and I”m the professional and only shot-caller.
The corporation has a defined benefit plan run with all i”s dotted and t”s crossed by an actuary. I am the administratorof the plan, invested with mutual funds at Vanguard. I forget if that makes Vanguard the custodian, or if I am that as well.
On 1-JAN-2010 (theyear I turn 55)I would like to cease business altogether and take unstructured withdrawals from the plan. I was thinking I could just close the doors on the business, dissolve the corporation,and notify my clients that they need to look elsewhere. Is the original poster”s problem that terminating the business causes the Age 55 rule to be inapplicable, as opposed to terminating the employment in an ongoing business?
2008-01-06 08:14, By: dt123, IP: [75.40.159.129]

L2: 401K Distr”n @ Age 55–“Separation from SeBottom line first: Get a competent tax attorney who works in both the tax and labor law arenas because it involves both tax and Department of Labor (DOL) law.
Here”s my understnading on this subject … and do NOT take this as a legal opinion. The owner of a business, eventhough he / she is positioned as an “employee” and receives a W-2,does not get the same protections given to true, non-owner employees. Since the “Solo K-plan” is restricted to the owner and spouse, these two individuals are not considered true “employees” of the company.
Again, seek legal advice from a taxand DOL attorney.
Jim2008-01-07 07:12, By: Jim, IP: [24.252.195.14]