Distribution for Public Safety Workers
There seems to be much discussion regarding this topic. I am aware that the Trade and Accountability Act of 2015 provided a provision that brought down the age of certain public safety officials (Police, Fire, Air Traffic Control, Boarder Patrol) from 55 to 50. The discussion seems to be the distribution from those retirement plans. If the person takes a distribution from the plan at age 50 there is no 10% early distribution penalty, if done after 01/01/2016. The concerns arises if those employees transfer those qualified funds into an IRA. Now are those employees able to take distributions from the IRA without incurring a 10% penalty? Normally, 10% early distribution penalty exist if you take distribution prior to age 59 1/2 from one’s IRA. You have some people that say yes, because the IRA is differentiating between the qualified retirement account and the non qualified account. Others say that if the employee rolls those funds into an IRA, the employee loses that provision and has to wait till age 59 1/2 because it is no longer in the same vessel that the provision affords it to. Can someone please advise the correct ruling on this provision. This is a very heated topic and it effects this specific sector of employees.
Permalink Submitted by Jose Morales on Tue, 2016-07-19 19:04
The language is very clear in that it applies to distributions from government plans:>>>>>(10) Distributions to qualified public safety employees in governmental plans(A) In generalIn the case of a distribution to a qualified public safety employee from a governmental plan (within the meaning of section 414(d)), paragraph (2)(A)(v) shall be applied by substituting “age 50” for “age 55″(B) Qualified public safety employeeFor purposes of this paragraph, the term “qualified public safety employee” means-(i) any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision, or(ii) any Federal law enforcement officer described in section 8331(20) or 8401(17) of title 5, United States Code, any Federal customs and border protection officer described in section 8331(31) or 8401(36) of such title, any Federal firefighter described in section 8331(21) or 8401(14) of such title, any air traffic controller described in 8331(30) or 8401(35) of such title, any nuclear materials courier described in section 8331(27) or 8401(33) of such title, any member of the United States Capitol Police, any member of the Supreme Court Police, or any diplomatic security special agent of the Department of State.
Permalink Submitted by David Mertz on Tue, 2016-07-19 23:00
Once the funds are moved to an IRA, IRA rules apply. Section 72(t)(3)(A) explicitly precludes the use of the age 55 (age 50 for public safety employees) exception for distributions from an IRA, so the only age exception to the early-distribution penalty for a distribution from an IRA is the age 59½ exception. The fact that the funds came to the IRA by a distribution from a plan to which the age 55 (50) exception could be applied is irrelevant.
Permalink Submitted by Carlos Rodriguez on Wed, 2016-07-20 22:31
I would like to the thank the two of you for responding to my topic. The first response, I was very aware of. The second response addressed the concern of rolling the funds into an IRA. As DMx advised, if the employee does roll out the funds to an IRA, he/she will have to play by IRA rules.