age 55 exception question
I have a question concerning the “age 55 exception” (being allowed to take money penalty-free from a 401k plan if you separate from service after age 55 but before age 59 1/2).
Could a person transfer money from their IRA into their 401k plan PRIOR to separating from service, thereby making their entire IRA account balance accessible and penalty-free after they do separate from service? It seems like a loophole, but I can’t find anything stating that it is not allowed.
Thanks!
Permalink Submitted by Alan Spross on Fri, 2011-03-11 22:12
Yes, this is a strategy that will work. There is no requirement for the 401k plan to account separately when coding distributions of funds sourced to an IRA rollover. This same scenario exists if an IRA is transferred to an employer plan prior to year 70.5, as it will eliminate RMDs until the employee retires.
Permalink Submitted by Jason Frank on Mon, 2011-03-14 14:09
Thank you so much! Your mention of avoiding RMD’s is interesting. I had never thought of that.