401k distribution age 55 separation from service
Re: 401k distribution age 55 separation from service, this is free of penalty if done by an employee, but what if a self-employed person retires and totally shuts down his business at age 55, can he use this rule to get penallty free distributions from his 401k?
2nd question: If he rolled his IRA into the 401k before retiring could all of the funds in the 401k be used for the age 55 exception, or do they need to be segregated and then use only funds that were originally in the 401k?
Permalink Submitted by Alan Spross on Thu, 2009-02-12 00:12
1) Yes, the penalty exception does apply here due to the following definition of “employee” copied from Sec 72t(5):
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72t(5) Employee
For purposes of this subsection, the term “employee” includes any participant, and in the case of an individual retirement plan, the individual for whose benefit such plan was established.
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2) Once the IRA is rolled into the 401k, they are 401k funds and the separation from service exception would apply to the entire 401k balance. Note however, that this does not apply to rollovers to Sec 457 plans.