avoid 72T-early retirement

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L1: avoid 72T-early retirementJust found out that I need to consider an early separation package from my work.
Situation is that I will be 53 years oldon 11/5/08and getting 18 months salary continuation when leaving my current job on 12/31/08 (salary ends in the year I turn 55).
If I go to work with another company after my salary ends (in the year I turn 55), can I take occasional withdrawals from my 401K without incurring the 10% penalty? I had thought that you could not work anywhere to avoid the 10% penalty.
Thought I would ask to see as I want to avoid the 72T route if possible.
This site is great!!2008-04-23 15:01, By: Mike, IP: []

L2: avoid 72T-early retirementIt does not matter whether you are working or not when you take the distribution. In your case, the key issue is whether you separated from service at 53 or 55. While the IRS has not defined separation from service in all scenarios, it is generally considered that separation occurs when you are no longer providing any services to the employer. Even though for retirement plan vesting purposes, you are considered to be acquiring years of service through age 55, you are actually separated from active service. I believe that qualifying for vesting does not constitute continuation of service, and therefore you separated prior to 55 meaning that you cannot take penalty free distributions from this plan under the separation from service exception in Sec 72t.
I would be interested in knowing if anyone is aware of any PLRs in which the IRS ruled otherwise.2008-04-23 19:44, By: Alan S., IP: []