early retirement distribution

[Guest dereck@cpactuaries.com]

Question regarding early retirement in 2 parts.

(1)If a participant reaches the age of 55 and seperates from the company and it does have an early retirement are there ways to provide a continuing income drawing from a profit sharing plan annually without being subject to 10% penalty.

(2)If there is an early retirement provision, the pension answer book chapter chapter 16(10) only states a lump sum payment as an example, could he take partial distributions at his own discretion or does he have to follow one of the three IRS tables for annuity payments?

Any help on this would be appreciated.

[masteff]

First, IRS Code section 72(t)(2)(A)(v) provides an exception for the 10% penalty for distributions "made to an employee after separation from service after attainment of age 55". The instructions for Form 5329 actually say "in or after the year you reach age 55".

Second, it depends on the plan's rules as to what type of withdrawals are available after separation from service. Some plans only allow lump sum distributions. Others allow monthly installments. Others allow "as needed" withdrawals. The only way to know is ask the plan sponsor and/or review the summary plan description.

Third, the amount of monthly installment payments generally can be any amount and does not have to use any of the IRS tables, UNLESS the person is either subject to minimum required distributions or is using certain methods to set up a series of substantially equal payments per Section 72(t)(2)(A)(iv) to avoid the 10% penalty.

[Guest dereck@cpactuaries.com]

Thanks for the response...thats what I thought just wanted to make sure...I even checked the most recent copy of the pension answer book and it only mentioned a lump sum dist in its example. Again, the reply is appreciated!

First, IRS Code section 72(t)(2)(A)(v) provides an exception for the 10% penalty for distributions "made to an employee after separation from service after attainment of age 55". The instructions for Form 5329 actually say "in or after the year you reach age 55".

Second, it depends on the plan's rules as to what type of withdrawals are available after separation from service. Some plans only allow lump sum distributions. Others allow monthly installments. Others allow "as needed" withdrawals. The only way to know is ask the plan sponsor and/or review the summary plan description.

Third, the amount of monthly installment payments generally can be any amount and does not have to use any of the IRS tables, UNLESS the person is either subject to minimum required distributions or is using certain methods to set up a series of substantially equal payments per Section 72(t)(2)(A)(iv) to avoid the 10% penalty.