A Retirement Planning Provision Hidden in a Trade Bill

Wednesday, July 15, 2015

By Jeffrey Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott

On June 29, 2015, President Obama signed two major trade bills into law; the Trade Preference Extension Act of 2015 and the Trade Priorities and Accountability Act of 2015. What does a trade bill have to do with retirement accounts? Well, buried deep inside one of the bills was a provision expanding the “Age 50 Exception” to the 10% early distribution penalty, beginning in 2016. Because, you know, where else would you expect to find changes to the law affecting retirement accounts than in a trade bill?

So what is the “Age 50 Exception” anyway, and what changes were made by the law? Here’s what you need to know in a nutshell.

  • The current “Age 50 Exception” allows certain state and local public safety workers, such as police, firefighters and emergency medical service (EMS) workers, to take penalty-free distributions from their government-sponsored defined benefit plans – like a pension plan – if they have separated from service in the year they turn age 50 or later.
  • Under the new law, more public safety workers will qualify for the exception. In addition to the state and local public safety workers who already qualify for the exception, certain federally employed public safety workers will also qualify. This will include certain federal law enforcement officers, firefighters, border protection officers, customs officers and air traffic controllers.
  • Under the new law, the exception is expanded to cover distributions from more plans. While under the current rules, the exception only applies to distributions from government-sponsored defined benefit plans, the changes will allow penalty-free distributions to be taken from both defined benefit plans and defined contribution plans, like 403(b) plans.
  • The changes to the age 50 exception are not effective until 2016. The “old” rules will continue to remain in effect throughout the remainder of 2015.
     

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