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Early withdrawal rules question
Old 06-22-2011, 07:49 AM   #1
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Early withdrawal rules question

DH has a qualified defined contribution money purchase pension plan. He retired at age 55 this year (2011). Rules say that he can access that money penalty free in the year he retired after age 55 or the following year.

Our question is this: If we choose to access that money before age 59 1/2 and want to avoid the 10% penalty, are we reading the rule correct that he would need to take that portion of the distribution by the end of 2012? Or could he access penalty free in say 2013 or 2014? Kinda confusing!

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Old 06-22-2011, 08:01 AM   #2
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First off, you should check with your tax adviser and perhaps his company's benefits dept.

I do not have an answer for you, just some things to look into and research.

Is it a 401k? Did he actually retire (based on the company's rules for retirement at 55)? If he actually retired, he should talk to someone in his benefits dept to see if he has rights to withdraw the money without the penalty.

If he does not have access to it through official retirement at 55... Look at rule 72(t).

If he intends to take some of the money and buy an immediate fixed life annuity that might meet the rule of substantially equal periodic payments (SEPP) for life. Discuss it with your agent.

Take your time and study it. Make sure you know the rules. If you are unsure, consult with a (competent) tax adviser (e.g., experienced CPA that specializes in taxes)..

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Old 06-23-2011, 02:09 PM   #3
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Talk with the company's benefit "expert." Sometimes they really are knowledgeable. If not, they'll usually tell you.

As I understand the rule, an employee aged 55 or older that ends employment with a company can access their 401k with that company without penalty -- if the company plan permits. This account can be accessed at any time after reaching 55 and after leaving the company. All withdrawals are fully taxable.

You stated it was a "defined contribution money purchase pension plan." I am not sure if the 401k rules apply. Ask the company's benefit expert.
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