401k Access at Age 55
Is it a universal rule that if someone leaves service between 55 and 59.5 they can take withdrawals from their 401k without the 10% penalty or is it a plan by plan decision? If you call the 401k vendor to ask whether they will code withdrawals as a normal or premature distribution they don’t seem to know.
Permalink Submitted by David Mertz on Fri, 2017-07-21 12:40
Yes, the penalty exception for separation from service (from the employer providing the plan) in or after the year the employee reaches age 55 does apply to all qualified retirement plans. The plan administrator *should* know the employee’s age and separation date, and the *should* use code 2 in box 7 of the Form 1099-R. If code 2 is present, the penalty exception is automatic and the distribution does not need to be reported on Form 5329 Part I. However, if they use code 1 instead, the penalty can be avoided by preparing Form 5329 Part I with exception code 01 on line 2. This exception is not available for distributions from IRAs, so someone eligible for the exception on distributions from a particular qualified plan would generally want to wait until after age 59½ to roll their assets in that plan over to an IRA.