Premature Distribution?

[Guest Amanda Davis]

I have a participant who will be 54 when he separates from service. Am I correct in saying that if he takes a distribution at age 55, he will be subject to the 10% early distribution penalty?

The literature I have states that the 10% is waived at age 55 only if the participant separates from service AFTER he/she attains age 55.

Will someone confirm this for me?

Thanks in advance...

[Belgarath]

I think you are generally correct. However, I have a dim memory of reading, somewhere, in a galaxy far, far away, that if you terminate employment during the calendar year you attain age 55, this satisfies the requirement even if you aren't yet 55 on the actual date of termination of employment. Hold on, just found the citation - IRS Notice 87-13. Maybe this could help in your situation.

[MWeddell]

I agree with what Belgarath wrote -- that's still the current rule even though it's a puzzle to me how the IRS came to that decision based on the language in the Code.