Pension Before 59 1/2?

[RockyMtn]

A question for the pension experts out there.

If someone takes a pension before the year they turn 59 1/2 will they be hit with a 10% penalty? They separated at the age of 57 from their company.

I was under the impression that if someone was older than 55 when they retired that there would be no 10% penalty. Similar to a 72t with a 401k. I am finding conflicting information on line.

Any help would be appreciated.

 

[Walt34]

It depends wholly on the pension plan. I retired on a pension at age 52, no penalty. But that was a public safety type pension, not the normal corporate type.

Best to check with your pension administrator.

 

[rodi]

It depends on the terms of the pension. Due to acquisitions - I had 2 pensions despite not changing jobs. One was the frozen pension of the company that was swallowed, the second was the frozen pension of the company that acquired us - but then split (and the pension went with the other half of the split). They had different terms...

The first was a DB pension that if it hadn't been frozen when we were acquired would have been pretty sweet... But you could not start pension payments till age 55. You could delay until age 65, then it automatically started (I think.)

The second was a "portable pension" - that had a lump sum or annuity option. The benefit was much smaller for years of service..., but hey - I'll take it. That one you could start taking as soon as you separated (quit, fired, or had the company split and the pension go to the other half of the split.) The payout of both was obviously age based... but there was no minimum age for the 2nd one.

No 10% penalty if you take it as an annuity/pension. If you take the lump sum you can roll it to an IRA to avoid the 10% penalty... or pay 10% if you're less than 59.

 

[pjm-7]

Generally, if you are taking pension payments they are calculated using a life expectancy (or joint-life) they are a stream of payments that are not subject to the age 59.5 rules. This is not applicable to a lump-sum cashing out of the pension.

 

[RetireAge50]

This is a good question. I will need to research this also. My pension will start when I am 50 and end when I reach 62. I have always thought regular taxes but no penalty. I hope this is true.

 

[nun]

Penalties for withdrawals before 59.5 from IRA, 401k etc are for non-periodic withdrawals. A lifetime pension payment or a 72t withdrawal from an IRA is a periodic payment and can avoid the penalty.

The start date of your pension will depend on the terms. For example my pension earliest withdrawal age was 55. The withdrawal is classed as "early withdrawal exception applies".

 

[Johnora]

Public safety pension at age 52, no penalty. In fact most public safety can pull pension starting at 50 with no penalty. We can also pull from our 457DF plan depending on each state entities plans without penalty upon retirement.
Bottom line is there are lots of rules and lots of plans and many are differnet. Of course pulling from a plan that early means you better know what you are doing and have saved enough and invested well.

 

[Just_Steve]

My pension started at age 55, no penalties just fed tax.

 

[Sue J]

DHs pension (state pension system that includes county employees) started at 55 and there is no penalty, just ordinary income taxes. A portion of his is non-taxable because it was a repurchase of refunded years of service that was paid back with after tax money.

The 1099-R says "7" in box 7 Distribution Code.

 

[RockyMtn]

talked to GF's pension center today and they told me that if your are under 59 1/2 they report it as a early distribution on the 1099R. They said it is up to you to file for the exception with form 5329 using either or both of the following exceptions to the 10% early withdrawal tax:

"The additional 10% tax on early distributions does not apply to the distributions described next:

1. Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from service when the separation from service occurs in or after the year you reach age 55 (age 50 for qualified public safety employees).

2. Distributions made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from an employer plan, payments must begin after separation from service).

The pension center said that her payments would be reported as normal distributions next year as she will be 59 1/2.

 

[ownyourfuture]

I retired at age 53 with a private sector pension & no penalties.
The key with this pension, is that you have to have a 'full' 30 years service.

 

[Alan]

I started my pension at 55 with no penalty because the rules of my company scheme was age+service >= 80 At age 55 and 25 years service I was good to go.

 

[Just_Steve]

I just checked my 1099-R and Box 7 has code 2 in it.

 

[Alan]

I just checked my 1099-R and Box 7 has code 2 in it.

My 1099-Rs from my DB pension before age 59.5 also had code 2 in box 7 but I never had any penalties. The year I turned 59.5 I received 2 1099-Rs from them, one with code 2 and one with code 7.

 

[RockyMtn]

I just checked my 1099-R and Box 7 has code 2 in it.

Why the company didn't list code 2 for ours I don't understand. Clearly they know there are 2 possible exceptions.

 

[Just_Steve]

My 1099-Rs from my DB pension before age 59.5 also had code 2 in box 7 but I never had any penalties. The year I turned 59.5 I received 2 1099-Rs from them, one with code 2 and one with code 7.

Thats interesting. I'll keep an eye out for that change if I remember in 3 years.

 

[pb4uski]

It sounds to me like that they either don't know what they are doing or are risk averse.

The Form 1099-R Instructions - Guide to Distribution Codes indicates:

2—Early distribution, exception applies.

Use Code 2 only if the participant has not reached age 59 1/2 and you know the distribution is the following.

• 
  .....
• A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.

Since they know her birth date and the date that she separated from service then they should be able to figure it out... but perhaps they are dumb a$$es.

 

[RockyMtn]

It sounds to me like that they either don't know what they are doing or are risk averse.

The Form 1099-R Instructions - Guide to Distribution Codes indicates:


Since they know her birth date and the date that she separated from service then they should be able to figure it out... but perhaps they are dumb a$$es.

Morgan Stanley is the bank that sent the 1099R with code 1 entered. Their 1099 phone number doesn't work until Feb 1.

The mega corp pension benefits center is the one's that gave me the info on filing the 5329 form. I don't know who is at fault yet but I will find out as you are correct that clearly they know DOB and date of separation. Should have just been a simple 1099 with code 2 entered.

Just happy don't have to pay the extra 10% under any circumstance!

 

[pb4uski]

I think it would be fair game for GF to request that they issue a corrected 1099-R with a code 2.... I doubt that they will do it but it will not hurt to ask.

 

[Alan]

Thats interesting. I'll keep an eye out for that change if I remember in 3 years.

I certainly wasn't expecting it either. The sum of the 2 1099s was equal to the annual pension and both had to be entered on the return.

 

[RockyMtn]

I think it would be fair game for GF to request that they issue a corrected 1099-R with a code 2.... I doubt that they will do it but it will not hurt to ask.

Will do that once the friggin 1099 service center opens.

 

[Bamaman]

I put my 30 years in at age 52, and I could have drawn my defined pension. However they throw you in the life expectancy table, and the amount that would been paid to me at that age was "too little." The company had long since gone to a generous 401k program that required us being 59 1/2 years old to draw upon it.

It sounds as if government regulations are wanting employees to work 30 years and be of 55 years or older to really take early retirement.

 

[kimcdougc]

DH pension started the day he retired at 57 and is for a lifetime with survivors benefits. No penalty.

 

[Cobra9777]

I retired at 52 with a corporate DB pension and elected the annuity payout option. It was explained to me that the annuity was taxable as ordinary income but no 10% penalty since it conformed to the SEPP requirement. But the lump sum option had to be rolled into an IRA and was then subject to normal IRA rules. My 1099-R has a 2 in box 7 (Early distribution, exception applies). No penalty.

 

[RockyMtn]

OP here. Finally got mega corp pension center to admit to the mistake. They were still showing GF as employed! Change has been made to status and updated 1099 will be sent with a 2 in box 7 (early distribution, exception applies).