Rolling over a pension to an IRA to allow a pre 59 1/2 dist.
Cleint is age 55 and has a pension. Her pension allows for a penalty free distribution before age 59 1/2.
Can client roll over the pension into an IRA and still qualify for the penalty free distribution before attaining age 59 1/2 ?
thank you in advance
keith james
Permalink Submitted by Alan Spross on Mon, 2008-06-30 20:08
Keith,
No, the separation from service exception to the penalty applies only to the employer plans from which the separation took place. Once funds from those plans are rolled into an IRA, they lose that advantage.
Often the best choice centers on the plan distribution options. If they are flexible, it is best to take distributions penalty free from the plan. However, if the plan does not allow periodic or changed distribution amounts, then the best choice is a direct IRA transfer and set up a 72t plan from the IRA to avoid the penalty. The 72t must last until 59.5 or 5 years, whichever is longer.