401k Penalty Free Distrubtions at age 55
Hi does anyone know where in the tax code I can find where it allows penalty free distributions from a 401k at age 55? Ihave a clients that just would like to see it in writing.
Thanks,
David
Hi does anyone know where in the tax code I can find where it allows penalty free distributions from a 401k at age 55? Ihave a clients that just would like to see it in writing.
Thanks,
David
Permalink Submitted by Al Fry on Thu, 2008-04-17 19:33
That would be found at IRC Sec. 72(t)(2)(A)(v).
Permalink Submitted by Alan Spross on Thu, 2008-04-17 20:45
Read the code provision carefully and note that the exception only applies to plans where you have separated from service in the year you turn 55 or later. You cannot separate prior to 55 and wait until 55 to get penalty free distributions.
This benefit is restricted in value if your plan does not provide a flexible program of partial distributions. If you had to take a lump sum distribution, the affect on your tax bracket would likely offset the benefits of penalty avoidance, unless you had a very small balance.