Exception to 10% early withdrawl penalty?

[Guest Don M]

Does the separation from service during or after the calendar year in which you reach age 55 apply to 403(B)?

[Michael Devault]

Yes, it does. If the employee separates from service during or after the year in which they attain age 55, the 10% premature distribution penaly won't apply to any distributions.

I'm asked frequently if someone separate from service at, say, age 52, then waits three years to take a distribution at age 55, does the penalty still apply. The answer is "yes." Separation must occur at age 55 or later.

Hope this helps.

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[Guest Don M]

Thanks for your help Michael.

quote:

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Originally posted by Michael Devault:

Yes, it does. If the employee separates from service during or after the year in which they attain age 55, the 10% premature distribution penaly won't apply to any distributions.

I'm asked frequently if someone separate from service at, say, age 52, then waits three years to take a distribution at age 55, does the penalty still apply. The answer is "yes." Separation must occur at age 55 or later.

Hope this helps.

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[jlf]

Michael, must these distributions that begin at or after age 55 be "substantially equal periodic payments"? Or may they be sporadic? ie: $2000 one year and $zero the next.

[This message has been edited by jlf (edited 03-31-2000).]

[This message has been edited by jlf (edited 03-31-2000).]

[pjkoehler]

Take a look at Code Section 72(t)(2)(A)(iv). "Substantially equal periodic payments" constitute a separate class of distributions exempt from the 10% excise tax. Amounts distributed after separation from service after attainment of age 55 is another class of exempt distributions. Sec. 72(t)(2)(A)(v). Therefore, regardless of the frequency or number of payments made after separation of service after age 55, each one is exempt from the tax.