[DPB55]

I need clarification on the following taken from IRS Publication 575.

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:
From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),

I was 54 when I was laid off in October and turned 55 in March the following year.
Do I fall within this exception since I am now 55 and separated from service, meaning I will not have to pay a 10% penalty for an early withdrawal from my 401K; or does this execption mean you must have been 55 when laid off from service, meaning I cannot use this exception and will have to pay the 10% penalty if I withdraw funds from my 401K account?

[ebaines]

Per the IRS web site, tax topic 558 (see: Tax Topics - Topic 558 Tax on Early Distributions from Retirement Plans) - the exception to the 10% early withdrawal penalty for being separated from service at age 55 is:

Distributions made to you after you separated from service with your employer, if the separation occurred in or after the year you reached age 55 (After August 17, 2006, does not apply to distributions from qualified governmental plans if you were a public safety employee who separated from service after you reached age 50)

It seems that you don't qualify for this exception, even though you are now 55 - sorry.

You might still consider a 72(t) withdrawal - one which sets up "substantially equal" payments from your 401(k) over your life expectancy.

[ScottGem]

I think EB may have misunderstood your question (or maybe I did). The way I read it, you were terminated during the year you turned 54, but you did NOT get a distribution at that time. Since you will turn 55 this year, you are wondering if a withdrawal will be subject to the 10% penalty. If that's the case, the way I read the rules, is that you won't be subject to the penalty. But I would check with your plan admins.

[ebaines]

I think EB may have misunderstood your question (or maybe I did). the way I read it, you were terminated during the year you turned 54, but you did NOT get a distribution at that time. Since you will turn 55 this year, you are wondering if a withdrawal will be subject to the 10% penalty. if that's the case, the way I read the rules, is that you won't be subject to the penalty. But I would check with your plan admins.

Scott - that's how I read the question - as I read the tax topic 558, it says you must be separated in the calendar year you turn 55 or later, not before, in order to qualify for the exception. In this case the OP was separated in the calendar year he turned 54, so even though he has not yet taken a distribution, and is now 55, he does not qualify for for this exception. At least, that's how I read the IRS documentation, which is very poorly written indeed.

[ScottGem]

Yep I agree its confusing. It wasn't clear whether the sepoaration had to occur after 55 or the distribution. If it's the separation then you are correct, obviously.