early distribution from pension plan, 10% exceptio

L1: early distribution from pension plan, 10% exceptioHi, again. I’m confused. Hypotheticals: I retire at age 54. I wait until January of the year I turn 55 and then take a cash distribution of my qualified pension plan. Do I get socked with a 10% penalty? If I wait until my 55th birthday, does that change anything? So I guess I have 2 questions: 1) can the separation be before the 55th birthday? and 2) can the early distribution come ANY time in the year of the 55th birthday or does it have to be on or after the birthday?
Some of the info on this exception seems to say theseparation from employer must be on or after the 55th birthday. Other info suggests all that’s necessary is separation before turning 55 and distribution in the year of the 55th birthday (but not necessarily on or after the 55th birthday.)
Thanks, in advance. I’ve learned a lot from reading the forum.
V.2006-02-02 12:16, By: V., IP: [162.119.240.102]

L2: early distribution from pension plan, 10% exceptio>>from employer must be on or after the 55th birthday
Yes.
>>is separation before turning 55 and distribution in the year of the 55th birthday
No.

You can find the code section by referring to teh top menu – look for the link to IRC Section 72.

2006-02-02 13:40, By: Gfw, IP: [172.16.1.73]

L2: early distribution from pension plan, 10% exceptioSince you appear to have retired in the calendar year before the year you turned 55, you cannot use the age 55 exemption regardless of how long you wait to take a distribution.
However, you do qualify if you retire in January of the year you turn 55, even though your birthday is not until the end of that same year. You must turn 55 no later than the end of the year in which your retirement is effective.
So to your questions:
1) Yes, as long as you turn 55 by the end of that same year.
2) Can come any time during that year.
You can start the distributions in the year you meet the requirement or any later year and the exception applies. 2006-02-02 13:44, By: Alan S., IP: [24.116.165.157]

L2: early distribution from pension plan, 10% exceptioAlan & Gordon have answered your questions quite well.
Let me put a term to the description in Alan’s second paragraph. The term is “attained age.” The wordy definition … not Alan’s but the IRS’s definition … boils down to answering the following question: “How old will you be on 12-31 of any given year?” When you answer this question you will know your “attained age” for any year.
I mention thisbecause you will probably run across the term in your research and it can be really confusing until you get a grip on how it works.
Jim2006-02-02 13:56, By: Jim, IP: [70.184.1.35]

L2: early distribution from pension plan, 10% exceptioI perceived a difference between my post and Gordon’s, so went on a hunt to see when the IRS came up with what “attained age” means in 72t. This seems to go back to IRS Notice 87-13:
Section 72(t)(2)(A) provides several exceptions to the general section 72(t)(1)rule. Among the exceptions are (i) distributions which are made on or after the date onwhich the employee attains age 59_, (ii) made to a beneficiary or the participant’sestate after the participant’s death, (iii) made after an employee’s becoming disabled,(iv) part of a series of substantially equal periodic payments (not less frequently thanannually) made for the life (or life expectancy) of the employee or the joint lives (or jointlife expectancies) of such employee and his designated beneficiary, and (v) made tothe employee after separation from service after attainment of age 55.Notice 87-13, 1987-1 C.B. 432, Q&A 20, provides, in relevant part, that adistribution to an employee from a qualified plan will be treated as within section72(t)(2)(A)(5) if (1) it is made after the employee has separated from service for theemployer maintaining the plan and (2) such separation from service occurred during orafter the calendar year in which the employee attained age 55.

The above applies to qualified employer plans only, not to IRA accounts eg. where age 59.5 means that exact date.2006-02-02 14:47, By: Alan S., IP: [24.116.165.157]

L2: early distribution from pension plan, 10% exceptioActually, not much difference – the age 55 rule is attained age and the age 59.5 rule is exact age. 2006-02-02 15:16, By: Gfw, IP: [172.16.1.73]

L2: early distribution from pension plan, 10% exceptioThanks.
V.2006-02-02 15:41, By: V., IP: [4.159.116.228]