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Defined Benefit Plan - Tax Penalty?
Old 02-07-2011, 12:28 AM   #1
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Defined Benefit Plan - Tax Penalty?

My employer's qualified defined plan allows for full unreduced pension at age 55 if you have at least 20 years of service. Now they are considering an early retirement incentive that would credit you with 3 years of age and 3 years of service towards that requirement.

My question is - if I am between 52 and 55 when they offer the incentive and I qualify for the full unreduced pension amount, am I subject to the 10% federal income tax penalty for being less than 59-1/2 years old?
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Old 02-07-2011, 12:37 AM   #2
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No penalty on receiving a pension (Defined Benefit Plan) at less than 55 years of age. A strong example is to look at all the military retirees where a super-majority are under 55.
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Old 02-07-2011, 07:37 AM   #3
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No penalty on receiving a pension (Defined Benefit Plan) at less than 55 years of age. A strong example is to look at all the military retirees where a super-majority are under 55.
+1. I retired at age 54 under a similar deal - no penalty.
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Old 02-07-2011, 08:44 AM   #4
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Pensions that cone in the form of periodic payments generally don't trigger the penalty, whether it's pension income or taking income from retirement savings before age 59.5 through Rule 72t.

The penalty would likely come into play only if you took a lump sum payout of the pension and didn't roll it over into an IRA or such -- not if you merely take monthly income from it.
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Old 02-08-2011, 06:49 AM   #5
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No penalty on receiving a pension (Defined Benefit Plan) at less than 55 years of age. A strong example is to look at all the military retirees where a super-majority are under 55.
+1 - Another group is law enforcement and firefighters, many who have 20-year retirement plans as standard. No penalty since there is no early withdrawal.
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