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Early Retirement, Defined Benefit Retirement Plan, Tax
Old 09-28-2014, 11:57 AM   #1
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Early Retirement, Defined Benefit Retirement Plan, Tax

My company allows distribution from the cash balance plan (a defined benefit plan) if one leaves the company at age as early as 55 and having at least 10 years of service with the company. Does this early distribution incur any tax penalties like if one gets early distribution from a defined contribution plan (like a 401k plan) before one gets 59 1/2 years old? Tried to google it but couldn't find any answer. If you have the answer (and better yet have the references), I'd appreciate.
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Old 09-28-2014, 12:55 PM   #2
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I have a defined contribution plan (A pension with a lump sum option that I did not contribute to - only the company did.)

I can roll out the lump sum into an IRA with no tax penalty. I would have to pay a 10% penalty to cash it out before 59.5.
I can start the annuity at any time - and pay income tax on the annuity payments - like a pension.
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Old 09-28-2014, 03:37 PM   #3
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Thanks Rodi. My question was about the "defined benefit plan", not the "defined contribution plan". I suspect there is no non-rollover tax penalty for qualified early DBP distribution, but I can't seem finding any official word about it.
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Old 09-28-2014, 04:15 PM   #4
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If you have reached retirement age under your plan and begin your DB payments you will not face IRS penalties.


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Old 09-28-2014, 06:10 PM   #5
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Finally found something from IRS. One of the 10% penalty exceptions.

Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs

There are certain exceptions to this 10% additional tax. The following six exceptions apply to distributions from any qualified retirement plan:

* Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
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Old 09-29-2014, 06:19 AM   #6
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Lots of companies and governments have early retirement under DB plans. You will pay income tax on most of the payments but no penalties.
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