Advanced Underwriting Consultants

Question of the Day – January 17

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: If a 401(k) plan participant retires in the year she turns 55—even if she is actually 54 on the day of retirement—does she qualifies for the age 55 exception to the 10% penalty tax on distributions from that 403b plan?

Answer: Yes.

The IRS has interpreted the age 55 separation requirement to be satisfied if the participant separates from service during the calendar year in which he reaches age 55, even if the actual separation date is before her 55th birthday.  See IRS Notice 87-13, A-20, which says:

A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.

Thus, the taxpayer qualifies for the exception to the penalty tax.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.