72(t)

[Guest KFLETT]

A participant was layed off from a major steel company in December of 2001. In 2002, the PBGC paid him retirement payments monthly from the DB plan (he's age 52 and had over 32 years in the company). The 1099Rs for 2002 were prepared using Code 2 (which triggers that a 10% penalty does not apply for pre-retirement distributions).

I'm not certain, since he's under age 55, if the 72(t) exception applies and that the 1099Rs are correct. Would you happen to know if the 10% tax penalty should not be applied in this case? He's under age 55.

I appreciate your help in this matter.

[Guest mikeak]

Monthly distributions (e.g., Annuities) are exceptions to the 10% penalty, so the IRS code 2 is correct.

[Guest KFLETT]

Age is not relevant? This is okay even if the participant is under age 55?

Thanks

[Mike Preston]

Age is not relevant to this particular distribution pattern. The exclusion from the additional 10% tax is found at section 72(t)(2)(A)(iv), which reads (as part of a list of exceptions to the additional tax):

"(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary."

Note that there is no age referenced.

[Guest KFLETT]

Thanks for your help.