1099-R Code 2

[Guest Mary O'Connell]

I have a question regarding the exception to the 10% penalty for distributions under age 59-1/2. My understanding is that if a person terminates at age 55, they are not subject to the penalty. Does the person have to actually be age 55 at the time of termination? Or, as long as the person turns 55 during the calendar year in which they terminate, are they not subject to the 10% penalty? I just spoke with someone at the Martinsburg Center and was told that there was no such exception.

[Guest b2kates]

Section 72(t)(2)(A)(v) provides that exemption from the early distribution tax. distribution must occur after separation and already having turned 55

Section 72(t)(2)(A)(v)

made to an employee after separation from service after attainment of age 55, or

[Disco Stu]

There is some conflicting information on this subject.

IRS Notice 87-13 says that "A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred

during or after the calendar year in which the employee attained age 55."

IRS Publication 575 also uses this language. Here's a link to that.

http://ftp.fedworld.gov/pub/irs-pdf/p575.pdf

This languarge seems to contradict what is in Section 72(t)(2)(A)(v). For the record, our firm uses the more lenient interpretation. I know we are not alone. Here is a link to a previous discussion on this subject.

http://benefitslink.com/boards/index.php?showtopic=8580