Question about retire and rehire

[Lump2]

I retired at age 57 and started taking early distributions from 401k plan. Using the exception, separates from service after the age of 55. This was Jan 1, 2015. Now the same employer has asked if I would like to come back and work temporary part-time 14 hrs a week. Can't seem to find a answer to whether this would possibly cause me to be subject to IRS 10% penalty on early distributions. I am not sure if the separation has to be forever or not. I talked to Benefits rep at employer and they say that retirees come back and work part-time all the time. Just looking for a little advice about this? Don't want to have to pay any penalty's.

 

[Big_Hitter]

What does the plan document say?

 

[Lump2]

I don't find anything in the plan that talks about rehires, The standard practice guide talks about retirees being able to be reappointed permanent or temporary. From what I can see there is no info about this issue anywhere? I looked at IRS website and don't see anything there that would really address this.

 

[Amethyst]

You should ask the IRS, since it's their rules you are concerned about. You should try to talk with someone directly, and ask about the relevant documentation.

Don't know if this reassures you, but rehired annuitants are common in Government. I'm working 2 days a week for my old employer without any hit to my pension - and if I wanted to draw from my 401K (Thrift Savings Plan) it would not affect that (I checked with HR, and also with other employees who are doing the same thing). I signed a contract with the employer, so I'm an independent contractor, but also a salaried worker (not a business owner). I am paid my former salary (pro-rated by the hour) but zero benefits. I cannot contribute to the employer's 401K, but I pay into Social Security and can fund an individual IRA.

Oh - my designation is "Interim," versus permanent or temporary.

Amethyst

 

[fosterscik]

This may help (https://www.expertplan.com/experts/ted_060600.jsp):

Question: I'm 55 and considering retirement very soon. I intend to combine my pension-plan lump sum with my 401(k), leaving the total in my current 401(k) account. I also intend to find work to supplement my retirement. Would my work plans threaten the non-penalty status of tapping into a 401(k) at age 55?

TB: Continuing to work after age 55 won't impact your right to tap into your 401(k) funds without triggering the penalty tax, as long as you are not working for the company that maintains the 401(k) where your money is held. You may work for any other company, either part or full time, without impacting your eligibility to withdraw these funds without penalty. You could even return to work with the same employer after the distribution has been reported to the IRS.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every Tuesday. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

This reads to me as if there will be no consequences for you if you do return to your original employer.

 

[Lump2]

Did you have a separation of service at any time? From what I see on the IRS website you would have to have a Bona Fide separation of Service to not pay the the penalty.

 

[pb4uski]

The above bolded item says after the distribution has been reported to the IRS, not after the distribution has been made and since you retired 1/1/15 any 2015 distributions will not be reported tot he IRS until January 2016.

I suggest that you ask the plan administrator whether your returning to work temporary part-time as proposed will in any way change the way they report your distributions received from the 401k to the IRS as that will be an important factor in whether or not the penalty will apply. I suspect that they will tell you that it will not affect the way they report such distributions to the IRS. Get it from them in writing if you can and there is not much more that you can do.

 

[Big_Hitter]

^ good advice - I'd also suggest talking to plan counsel and/or an ERISA attorney as well. This is serious stuff.

 

[Lump2]

I called IRS 800 number for Tax Questions and spoke to a woman who informed me that it is up to the employer, how they code your 1099, as long as it was coded with the exception on it, That would determine it was not subject to a penalty. Does that make sense?

 

[pb4uski]

That sounds about right and was essentially what I was getting at in post #7 and I think it makes sense that the IRS would not hold the taxpayer responsible if the payer miscoded the 1099 as no penalty when based on the facts and circumstances it should have been with penalty since it isn't reasonable to expect taxpayers to make that determination since they wouldn't necessarily have all the fact needed to make a proper determination.