age 55 401(k) withdraw without penalty
I have a client has a 401(k) from a previous employer (his previous company was bought out by the new company, and he left his old 401(k) where it was). client was age 50 at the time wWhen his old company bought out his new one
The client recently turned age 55 and separated from service from his current employer (again, the one that bought out his old employer). Can he access the funds in the old employer’s 401(k) prior to age 59 1/2 without penalty? He was age 55 when he left the current employer, but I am not sure if the age 55 exception only refers to the most recent employers plan, or any 401(k).
any thoughts?
Thom H.
Permalink Submitted by Alan Spross on Mon, 2011-05-02 18:01
If he stayed with the acquiring employer continuously throughout this period, the age 55 exception should apply. It should not matter whether the new employer discontinued the former 401k plan or not. But the client should still check with the plan administrator for assurance that his 1099R will be coded with the age 55 exception.
It is true that this exception only applies to the plans of the current employer. But if the new company ACQUIRED the old company, even grandfathered plans of the first company should be eligible for the exception.
Permalink Submitted by Thom Hall on Mon, 2011-05-02 21:54
Let me add some specific information. The client worked for ConocoPhillips, who in 2002 sold their refinery to Holly Corporation. So, the plant the client worked at was sold, the employer changed, and the plan changed. They really were not continuously employed as the former employer actually SOLD them, didn’t buy them. I misspoke in the previous details. If the age 55 rule applies for only the employer that was present at the time of separation, then I don’t think the rule applies. Do you agree?
Permalink Submitted by Alan Spross on Mon, 2011-05-02 23:15
The exception applies to plans maintained by the employer that the employee separates from. One of the keys to determine if the old 401k was maintained by Holly is whether the client could have rolled it over to an IRA any time he wished after Holly took over. If he could have it means he was deemed separated at the time of acquisition, and that indicates that the plan was no longer maintained by Holly and in that case the penalty exception would not apply.
To avoid the penalty, there is always the last resort option of starting a SEPP from an IRA after rolling the former plan to an IRA.