Is 72t really required if I’ve reached my employer’s “normal retirement age”?
L1: Is 72t really required if I’ve reached my employer’s “normal retirement age”?I’ve been getting some mixed signals from different sources. I am 58 1/2 and have over 30 years of service as an airline pilot. Even though the FAA has raised the mandatory retirement age to 65, all of our retirement plans still define “normal retirement date” as age 60 or 30 years of service, whichever comes first. If I “pull the plug” prior to age 59 1/2, am I still subject to IRS penalties and forced to go the 72t route? I would prefer not to subject to mandatory withdrawals for 5 years.Thanks!2011-03-31 12:05, By: Barry, IP: [126.96.36.199]
L2: Is 72t really required if I’ve reached my employer’s “normal retirement age”?Start by checking with your Plan Administrator or read your summary Plan Description- there is probably an early retirement provision in your plan.2011-03-31 12:13, By: Gfw, IP: [188.8.131.52]
L3: Is 72t really required if I’ve reached my employer’s “normal retirement age”?Good idea, there is. However, this would not be “early retirement” for me as I have reached the “normal retirement” date with over 30 years of service by company/contract definition.2011-03-31 12:18, By: Barry, IP: [184.108.40.206]
L2: Is 72t really required if I’ve reached my employer’s “normal retirement age”?By Pulling the plugÛ do you mean leaving the employ of the FAA? If so, any withdrawals made in the year you leave will not be subject to the 10% early distribution penalty. Under the penalty rule, you are not subject to the 10% penalty on any withdrawals you make after you leave that employer,PROVIDING you separate from service with your employer during the year you reach age 55 or later .
2011-03-31 12:20, By: Denise Appleby, IP: [220.127.116.11]
L3: Is 72t really required if I’ve reached my employer’s “normal retirement age”?Thanks for your input. To clarify, I am not an FAA employeee. I am an airline pilot. The FAA makes the rules. What I hear you saying is that I can retire (“pull the plug”) from my company at age 58 1/2 and not be subject to any IRS penalties when it comes to 401k and/or IRA withdrawals after the rollover of funds into an IRA. Am I reading you correctly? Any other input or wisdom for me? Thanks!2011-03-31 12:56, By: Barry, IP: [18.104.22.168]
L4: Is 72t really required if I’ve reached my employer’s “normal retirement age”?I believe Denise was referring to the options in many 401k plans that allow partial distributions after separation, combined with tax law thatthere is no 10% penalty on after 55 401k withdrawals if you did not leave that employmment until at least the year you turned 55, which is fine in your case.CAUTIONOnce you move that qualified plan (401k) $$ to an IRA, then the IRA early withdrawal penalties kick in if less than 59 1/2 and not being taken out as part of a72t plan. See if the 401k allows you to make periodic withdrawals, and if so, get the money from the 401k, and don’t move it to an IRA until after you passed 59 1/2. KEN2011-03-31 13:37, By: Ken, IP: [22.214.171.124]
L4: Is 72t really required if I’ve reached my employer’s “normal retirement age”?Not exactly. Withdrawals from your employer plan would not have a 10% penalty since you are over 55 when you would separate from employment. However, if you roll the 401k over to an IRA any withdrawals prior to 59.5 if not established as part of a 72t SEPP would incur the 10% Penalty.
Also, check your employer 401k options for withdrawals after separation from employment. Withdrawal options are set by the individual company 401k plan and listed in the Summary Plan Description. But as long as your withdrawals are from the employer plan (401k) there should be no 10%.Agree with KEN – didn’t see his post2011-03-31 13:45, By: meb24, IP: [126.96.36.199]
L5: Is 72t really required if I’ve reached my employer’s “normal retirement age”?We can’t overemphasize the importance of determining the ability to take “systematic” or “periodic, as needed” distributions from your K-plan after you “pull the plug” and retire. (I understand the concept of “pulling the plug” after 20+ years as a Navigator in the USAF flying KC/RC/EC-135’s. Sometimes it’s hard to keep the pilot team from landing “gear-up” after 18+ hour flights. Back to 72(t).)We have found that so few K-plans allow you to withdraw funds periodically as you will need that the only option generally is the IRA Rollover and start a 72(t) SEPP Plan. If you should find that you cannot make periodic distributions for this one year until you reach 59 1/2, then consider the following idea.Assume your plan will allow a “one-time” distribution directly to you IN CONJUNCTION WITH processing the IRA Rollover (typically what you find in most plans), then take enough money to live on for a year and roll the balance into an IRA. The plan is required by law to withhold 20% for taxes on any amounts sent directly to you and you will report this amount withheld in the “taxes paid” section when you file your taxes for this year (2011) in 2012. IF after doing this you find later in the year that you underestimated your year’s money needs, then take a “penalty distribution” from the IRA which should be a relatively small amount. This way you get funds to live on for a year, have a “safety valve”with the potential penalty distibution from your IRA Rollover, and after you turn 59 1/2 you can take any amount of distributions from the IRA Rollover account.Hope this is helpful.Jim2011-03-31 14:14, By: Jim, IP: [188.8.131.52]
L6: Is 72t really required if I’ve reached my employer’s “normal retirement age”?Posted by Chuck… Barry,
Just to clarify maybe a little more in relation to your original question – there is a difference between tax law and plan rules. Your plan allows you to take out your money when their rules say that you can but the IRS states that anything that you take from an IRA (or other qualified retirement plan) before reaching age 59 1/2, they will assess an additional 10% penalty. With a 401(k) the IRS says that you can take distributions without the 10% penalty if you are 55 the year you quit or seperate from service. What everyone has been stating is based on this information. Hopefully this might clarify why you might be getting confilicting information.
You are not “forced” to do a 72(t) if you retire before you become 59 1/2. Jim has probably the best suggestion to consider.
You might also try reading the planning pointers on this site athttp://72t.net/72t/Planning/Pointers.
Chuck2011-03-31 14:37, By: Gfw, IP: [184.108.40.206]
L7: Is 72t really required if I’ve reached my employer’s “normal retirement age”?One other major issue – If you are, or have been working for a Commercial Airline, contact the Human Resources/Personnel/Payroll Dept. Ask if there is COMPANY STOCK in the employer retirement plan. If so, then ask for the “COST BASIS” in the NUA ( “Net Unrealized Appreciation”) stock. If this stock has appreciated in value over the years, there can be significant tax savings by taking a distribution in this stock. Read about it on this website, or in J K Lasser YOUR INCOME TAx ( or in IRS publications).Do this NOW. before doing anything else, just in case it applies to you.P.S. There must be some better way to get through the next 12 months to 59 1/2 rather than having to get locked into a 5 year SEPP 72-T. Are you eligible for a home equity loan ? Does your spouse have a retirement paln at work that she can borrow against up to $ 50,000 to carry you most of the next 12 months ?2011-03-31 18:31, By: dlzallestaxes, IP: [220.127.116.11]