Distribution code between 55 & 59 1/2

[doombuggy]

I know this doesn't come up too often (at least not in our office), but we were having a discussion on it. so tell me what you think:

Participant A turns 55 in 2009 and terminates on 12/1/2009. She requests a lump sum distribution. Should her code be a 2 and does she get a 10% early w/d penalty?

Participant B turns 55 in 2009 and terminated on 12/1/2007. He also requests a lump sum distribution. Should his code be a 2 and does he get s 10% early w/d penalty?

Our opinion of the instructions would be yes & no for A, no & yes for B, with his code being a 1.

Thoughts?

[ACox]

I would agree with your answers.

[Guest PensionPrincess]

I was just looking up this situation this week! You are correct -

To avoid the 10% penalty tax, the employee has to receive the distribution AFTER separation from service, and separation has to occur during or AFTER the employee reaches age 55.

Participant B terminated BEFORE attaining age 55 in your example.