Age 55 Separation from Service 60 days from termination?
A client was told by plan custodian they had 60 days to decide if they want to take a distribution to avoid the 10% penalty but that seems inaccurate. If the plan allows them to remain after termination, and allows at least one distribution per year, woudln’t they be allowed to take the distribution in the future / beyond 60 days from term date and it woudl be coded correctly b/c over 55 and separated from service but if not they could file the correct form to indicate they met the exemption?
Permalink Submitted by Alan - IRA critic on Wed, 2023-09-27 20:11
Yes, if the 1099R did not show code “2” (penalty exception), the client can claim the exception on Form 5329 if they are actually separated from service. Not sure what you meant by “allows them to remain”. However, the typical challenge in using the penalty exception is that plans may not provide partial distributions. If the plan requires a lump sum distribution, the tax load would probably offset the penalty exception.