A Retirement Planning Provision Hidden in a Trade Bill

Submitted by joe fotz on Thu, 2015-07-16 10:25

Yesterday’s Slott Report indicated that starting in 2016 anyone separating from service in the year one turns 50 can withdraw funds from a defined benefit program without incurring the 10% penalty. I separated from service last month and will be turning 50 in September. Until reading this I planned on withdrawing my pension funds this year and incurring the 10% penalty. If I were to wait to withdraw my funds until 2016 would I avoid the penalty or would this provision not apply to me since I separated and turned 50 in 2015?



Submitted by Alan - IRA critic on Thu, 2015-07-16 19:50

  • The recent legislation only applies to Public Safety Officers as defined in the bill and extends the eligible plans to Defined Contribution Plans such as the TSP. DB plan distributions to PSOs have been eligible for the penalty waiver in the past. If you are an eligible PSO the penalty waiver applies to those who separate in the year they will reach 50 or later, so you would be included if eligible.
  • The provision applies to distributions after 12/31/2015. While I have not seen an official clarification of this, my guess would be that you did not have to separate after 2015, and will be eligible for the penalty exception, but only for distributions you take after this year.
  • The legislation also includes a provision that if you have a valid 72t plan in place to waive the 10% penalty, if you qualify for penalty free distributions from that plan due to the new provision, your 72t plan would terminate without penalty in the same manner as if you became disabled and you could withdraw whatever amount the plan allowed you to without penalty.
  • Here is the actual legislation, but the definition of qualifying employees is contained elsewhere: https://www.congress.gov/114/bills/hr2146/BILLS-114hr2146enr.pdf 

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