Age 55 exception under 72(t)(2)(A)(v) and LSD rollover

Submitted by Michael Kelsall on Tue, 2019-12-10 21:31

Question –
Assuming a retiring employee is age 56, and his pension and 401(k) plan permit it, if the retiring employee were to elect a lump-sum rollover from the pension plan and roll the money into the 401(k), would distributions from the rollover amount from the 401(k) be eligible for the exception to the 10% penalty under §72(t)(2)(A)(v)?

I believe the answer is yes, but I am being challenged. The contrary contention is that the penalty exception would only be available to the original 401(k) balances. That does not seem correct, but wanted to check. If there is a limitation to the exception, do we know where the citation would be in the Regs?



Submitted by Alan - IRA critic on Wed, 2019-12-11 00:35

  • The code does not state any restrictions to the age 55 separation exception for post separation rollovers into the plan, and while such rollovers have been infrequent it is worthwhile to note that PSOs who enjoy the same penalty exception at age 50 are also not subject to such restrictions and this provisions is recent, enacted after all the portability expansions between different plans. Therefore, the 1099R for any such distribution from the 401k should be coded with exception code 2 for any distribution from the plan after separation at 55. 
  • If there was an exception I assume it would be in Sec 72t, similar to 72(t)(9) stating that non 457 rollovers into the plan are not treated as 457 funds for purpose of the early distribution penalty.

Add new comment

Log in or register to post comments