L1: P.L 114-26Hello Everyone,
Can anyone provide background on this bill (H.R.2146 or P.L.114-26) and answer these few questions:
1. Is the bill/the ability to draw from a defined benefit or defined contribution plan still depend:a. On the year you SEPARATED FROM WORK…Not Attaned the age of 50?b. Leaving the assets in an EMPLOYER plan….i.e.this does not apply to these assets rolled to an IRA
This last paragraph of an article leaves doubt.
Substantially Equal Periodic Payments
Another exception to the 10 percent tax permits payments over a participant’s life expectancy or over the joint life expectancies of the participant and the participant’s spouse. A change in the amount of those payments can trigger the 10 percent tax.
Neither state nor federal employees has ever been granted any special rules about taking substantially equal periodic payments from governmental retirement plans that qualify for avoiding the 10 percent tax on early distributions. Now they have. Beginning in 2016, both federal and state public employees who are taking such payments from governmental retirement plans will be able to alter the pattern of payments after reaching age 50 without incurring the 10 percent tax.
a. Are they speaking about taking SEPP’s from a work plan or an IRA?b. Does this mean a person can modify payments after age 50 if they left at 48?1. Does it apply to work plans or IRA’s?2. If IRA, can someone who already has a 72(t) going from IRA’s modify at age 50 after Jan1, 2016?2015-08-14 16:01, By: PAF, IP: [220.127.116.11]
L2: P.L 114-26I believe that this applies only to FEDERAL AND STATE EMPLOYEES, AND INVOLVES ONLY GOVERNMENT RETIREMENT PLANS, which is exactly the wording in the 2nd paragraph above. No where does it mention, or even imply, that it has anything to do with IRAs.
That answers Questions a and b-1 and b-2.
I believe that this is the reason for the Bill to allow what you are asking about in Question b.2015-08-14 20:05, By: dlzallestaxes, IP: [18.104.22.168]
L3: P.L 114-26Hello Everyone,
Thanks for the replies.
However, I can’t seem to find it “in writing” that the new law applies to anyone other than FEDERAL EMPLOYEES. Some articles/summaries lump STATE employees in but I cannot find proof that is the case.
Any ideas??2015-08-16 11:35, By: PAF, IP: [22.214.171.124]
L4: P.L 114-26It applies to…
EARLY RETIREMENT DISTRIBUTIONS TO FEDERAL LAW ENFORCEMENT OFFICERS, FIREFIGHTERS, AND AIR TRAFFIC CONTROLLERS IN GOVERNMENTAL PLANS.
You might be looking for something that doesn’t exist. Check out the link below.
PL 114-262015-08-16 12:34, By: Gfw, IP: [126.96.36.199]
L5: P.L 114-26The prior law applied to defined benefit plans of state and local PSOs. PL 114-26 expanded the prior provisions to include federal PSOs as defined and also to DC plans, which in this case is primarily the TSP. Therefore the vast majority of PSOs in the US that are in qualified plans having an early distribution penalty are eligible for unrestricted penalty free distributions. They must have separated in the year they reached 50 or later even if that year occurred prior to 2016, but a qualifying distribution from one of these plans cannot occur until 2016.
Therefore, you still cannot separate prior to 50 and later receive a qualified distribution, and distributions taken before 2016 are not qualified even if you separated post 50.
The reference to SEPPs will cause confusion because the new modification exception (a 72t(10)) is the first one that is triggered by a qualified distribution rather than a personal situation (death or disability) that is permanent. Until we get clarification, a PSO should play it safe:
1) If they rolled the TSP to an IRA and started a SEPP, the new provision will not help.
2) If they rolled a PORTION of their TSP to an IRA and started a SEPP, leaving a balance in the TSP from which they could take a qualified distribution, I would not attempt to use that distribution as an exception allowing modification of the IRA SEPP. These are different retirement plan types and cannot be aggregated in the SEPP universe.
3) If they have done nothing (perhaps they have a state DC plan or federal TSPand separated after 50), in January they can take direct penalty free distributions from that plan and will not need a SEPP.
4) If they are taking level payments from theTSP nowthat are calculated using one of the 3 methods in RR 2002-62 and separated after 50, they can now take qualified distributions from the TSP without modifying the SEPP. However, I would not treat the distribution as a permanent exception to the SEPP. Until clarified, assume that you need to take such a distribution EVERY YEAR to generate the 1099R containing code 2 in Box 7, or if you do not get the code 2 you would need to file a 5329 using exception code 01. I anticipate confusion on this issue to persist until the IRS releases guidance on the SEPP related provisions of the Act.2015-08-16 16:33, By: Alan S, IP: [188.8.131.52]
L6: P.L 114-26Thanks very much gang…..I dug a little further and the law references section 72t and in that IRS code it describes the definition of public safety officer and does use the words federal, state and local. I agree everyone should wait for IRS guidance and clarification before acting on this. For now, it seems to “slant” only towards federal employees. Not state/local.2015-09-01 14:25, By: PAf, IP: [184.108.40.206]
L7: P.L 114-26PAF, 114-26 only adds federal PSOs to the state and local PSOs that had this early retirement benefit for the last several years (but only from DB plans).
If you pull up Sec 72(t)(10)(B) and pair it up with 114-26 you can see how the tax code section is amended by adding the federal PSOs. In fact, for state and local PSOs, their penalty exemption is also expanded to DC plans in addition to the DB plans they had all along.
In other words, 114-26 did not reduce in any way the exception for state and local PSOs, it added to the exceptions but also added federal PSOs for the first time. That is why 114-26 appears to slant toward federal PSOs but all the PSOs now have equal penalty waivers at age 50.
2015-09-02 00:29, By: Alan Spross, IP: [220.127.116.11]