Permalink Submitted by Alan Spross on Wed, 2007-10-03 03:12
The only way to avoid the penalty on the direct distribution would be if the teacher separated from service in the year they reached 55 or later. This can be prior to their 55th birthday as long as it is in the calendar year of the 55th birthday. Other penalty exceptions could also apply depending on the reason for expenses paid in the year of withdrawal.
If the teacher is NOT separated from service, AND if the plan allows in- service non hardship distributions, the teacher could transfer funds to an IRA and then set up a plan under Sec 72t using a series of substantially equal periodic payments that must continue at least 5 years for a 55 year old. The distributions would be taxable, but not subject to penalty.
Permalink Submitted by Alan Spross on Wed, 2007-10-03 03:12
The only way to avoid the penalty on the direct distribution would be if the teacher separated from service in the year they reached 55 or later. This can be prior to their 55th birthday as long as it is in the calendar year of the 55th birthday. Other penalty exceptions could also apply depending on the reason for expenses paid in the year of withdrawal.
If the teacher is NOT separated from service, AND if the plan allows in- service non hardship distributions, the teacher could transfer funds to an IRA and then set up a plan under Sec 72t using a series of substantially equal periodic payments that must continue at least 5 years for a 55 year old. The distributions would be taxable, but not subject to penalty.