Rule of 55 question
Hello,
If someone retires and qualifies for the rule of 55, can they roll over money from a previous employer plan or IRA into the plan that qualifies for the rule of 55 after separating from service? Or do they need to roll over previous employer plans and IRAs into the current employer plan before separating from service?
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2024-06-24 21:22
Most plans will not accept rollovers after separation from service, but if such a plan did accept the rollover those balances would also qualify for the penalty exception. Safer to complete these rollovers prior to separating from service.
Permalink Submitted by Sarah Murphy on Mon, 2024-06-24 23:30
Thank you, Alan. This plan allows rollovers after separation from service. I thought money rolled over post-separation into a plan that qualifies for the age 55 exception would also qualify, but I came across an article today that said otherwise.
I always appreciate your responses. Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2024-06-25 00:22
If the plan did not recognize the rollover funds, they would have to keep them in a separate sub account which is not otherwise necessary after separation, then determine if any distribution came from the original balance or from the rollover balance. If the distribution was large enough to include amounts from each such sub account, it would have to be reported on separate 1099R forms, one coded for the penalty exception and the other not. I have never heard of a plan doing that or that included provisions to support that.
The former employee should ask the plan administrator this question before doing a rollover if the penalty waiver is the reason for the rollover.