Waiver of 10% Penalty for Public Safety Employees
It is my understanding that public safety employees are not subject to the 10% penalty on early distributions from defined benefit governmental pension plans after they reach 50 but that this waiver does not extend to distributions from a 401(k) or Thrift Savings Plan (TSP). Is that correct?
Permalink Submitted by Peter Lingane on Thu, 2011-11-03 15:53
The exception applies to a governmental qualified defined benefit plan when the public safety officer separates from service in or after the year he/she attains age 50. A 401(k) plan is a qualified defined contribution plan so the exception does not apply.
The federal thrift plan is generally treated as a defined contribution plan so my hunch is that the exemption does not apply.
Do anyone know of a good source of information on thrift plans?
Are there governmental 401(k) plans?
Permalink Submitted by Nelson Champine on Thu, 2011-11-03 19:15
From the TSP booklet, “Important Tax Information About Payments From Your TSP Account”
TSP-536 (12/2010)
[b]Additional 10% penalty tax if you are under age 59½.[/b]
If you receive a TSP distribution before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10% of
any portion of the distribution not transferred or rolled over. The additional 10% tax generally does not apply to payments that are:
• [b]Paid after you separate from service during or after the year you reach age 55;[/b]
• Annuity payments;
• Automatic enrollment refunds;
• Made as a result of total and permanent disability;*
• Made because of death;
• Made from a beneficiary participant account;
• Made in a year you have deductible medical expenses that exceed 7.5% of your adjusted gross income;*
• Ordered by a domestic relations court; or
• Paid as substantially equal payments over your life expectancy.
Permalink Submitted by Alan Spross on Thu, 2011-11-03 21:36
The age 50 exception would not apply to TSP distributions. The TSP is treated in almost all respects as a DC plan, so the same exceptions that apply to 401k plans also apply to the TSP.