Rule of 55 – separation from service
I am 55 years old and plan to retire from full-time employment in Apr 2022. I want to access my 403(b) funds via the Rule of 55 where I do not pay a 10% penalty. I have been offered a part-time position with the same company. As a part-time employee, I will not be eligible to participate in the company’s retirement plan. Does moving from full-time to part-time with the same company satisfy the separation from service requirement? Will there be a problem if I start withdrawing funds from the 403(b) and am working part-time for the same company? Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-01 14:51
It’s a good question because the IRS has never defined what constitutes “separation from service” or “retirement” in detail. You should ask the plan administrator if they will code the 1099R with code 2 in Box 7. If they do, the IRS is unlikely to question it. On the other hand, if they issue code 1 (early) and you override it by filing Form 5329 showing exception code 01, the IRS might request more documentation of your status as of the day of the distribution.