age 55 early retirement
Have client who was laid off at age 54. But severence package of 1 year wages has him still receiving a w-2 form at age 55 (2010) He needs some money but will this be considered early withdrawal or fall under the early retirement part of the of the plan?
Permalink Submitted by Alan Spross on Wed, 2009-10-07 22:37
To take advantage of the age 55 separation exception, the employee must not be offering significant services any longer. If the employee performs no service and is merely collecting a roll out severance reported on a W-2, the exception should apply. Qualification for the severance benefit it itself is indicative of separation from service.
The separation must occur in or after the year the employee reaches 55, so it is possible that a 54 year old at date of separation could qualify, since they might reach 55 before the end of that calendar year. Distribution must be taken directly from the plan, if rolled to an IRA, the exception no longer applies. Also, the employee cannot separate prior to 55 and then wait until 55 to use the exception.
Permalink Submitted by mk foss on Thu, 2009-10-08 00:54
There was a Tax Court opinion last year that indicated the plan participant must attain age 55 on or before separation from service to avoid the penalty. It’s the Jesse Williams case (TC Summary Opinion 2008-53). The statute indicates that you avoid the penalty if you attain age 55 in the year separated.