Service worker early distribution exception and 401k to IRA rollover
I had a prospect meeting with a retired state police officer. He is 48 years old and service years were more than 25 years so early distribution penalty exception rule applies to him in his 401k. He was told by another advisor that the early distribution rule would apply even if he rolled those funds into an IRA as long as he could prove they came from his 401k plan with the State Police. Am I missing something? I do not know this to be true and cannot find anything to support this.
If he rolls his 401k from his state police plan into an IRA (a tax free direct rollover), he would be subject to the 10% early distributiton rule until he turned 59.5, correct? (Unless he were taking SEPP 72(t) distributions)
Permalink Submitted by Alan - IRA critic on Wed, 2024-10-23 14:32
You are correct. This penalty exception does not apply to IRA distributions and there is no provision for tracing IRA rollovers back to the govt plan.
The new 25 year exception also appears to apply to service only under the particular plan from which the PSO retires.