Age 55 Exception - Full Plan Termination

Let's say an employee turns age 55 in 2025. The plan is terminated in 2025, but the employee is still working for the company.

If he chooses to take a direct distribution, would he get age 55 exception from the 10% penalty?

Thanks.

Thank you!

Another quick follow up question... let's say we know that the business at which the participant works will close down in 2025, so the participant will no longer be employed in 2025.

Since the termination will take place in 2025, could Code 2 be used for this distribution? Or is it better to use Code 1 at time of Distribution?

Thanks.

Will the payer tax-report the distribution soon after it is paid? Or will the payer wait to tax-report until after the calendar year has ended?

Peter,

We categorize the code at time of distribution.

Thanks,

A Form 1099-R tax-information report should be true when the reporter signs or otherwise adopts the report.

One might be reluctant to code a report assuming a fact that has not yet happened.

6 hours ago, Peter Gulia said:

One might be reluctant to code a report assuming a fact that has not yet happened.

One might.  But I seek to understand the issue better:  suppose the distribution is on 10/1/25, and the plan sponsor shuts its doors on 10/02/25.  Does this make any difference?

Even if the plan issues a 1099-R reporting no known exceptions, the individual can still show that they are exempt from the penalty on Form 5329, filed with their income tax return.