Self employed and age 55 rule
I have a client who is currently owns a small business and will be starting a 401(k) for the employees in the next few months. His wife is currently 54 and has a large IRA. She has recently been employed by the company, and will be contributing to the 401(k). If she rolls her IRA to the 401(k), and subsequently quits in 2019 (the year she turns 55), would she be eligible to access the 401(k) assets without penalty? The company only has a few employees, so the business owner was planning on very lenient eligibility rules. He would also allow for partial withdrawals.
Thanks!
Josh
Permalink Submitted by Alan - IRA critic on Thu, 2018-07-05 22:33
Yes, she could do that as long as the 401k document allows acceptance of IRA rollovers.
Permalink Submitted by Josh Harmon on Fri, 2018-07-06 16:27
Thank you! Also, if they have an employee who started working for the business at age 56, then rolled an IRA to the plan, then quit, would they have the same opportunity to withdraw funds prior to age 59.5 without a penalty?
Permalink Submitted by Alan - IRA critic on Fri, 2018-07-06 16:49
Yes, any holdings in the plan can be distributed penalty free under the age 55 separation exception. The issuer of the 1099R must use Code 2 in Box 7 for the penalty exception.