Generally, distributions that occur before the participant reaches age 59 ½ are subject to a 10% early distribution penalty, unless the participant qualifies for an exception. One of the exceptions is what is commonly referred to as the ‘age 55’ exception.
Under the age 55 exception, a distribution from a qualified plan or 403(b) plan is not subject to the 10% early distribution penalty, if the following applies:
- The participant separates from service with the plan sponsor in the year he or she reaches age 55 or later, and
- The distribution occurs after he or she separates from service with the plan sponsor
Note: Age 55 is reduced to age 50, if the distribution to a qualified public safety employee.
Qualified public safety employees.
For this purpose, a “qualified public safety employee” —
- any employee of a State or political subdivision of a State who provides:
- police protection,
- firefighting services,
- emergency medical services, or
- services as a corrections officer or
- as a forensic security employee providing for the care, custody, and control of forensic patients for any area within the jurisdiction of such State or political subdivision, or
- certain Federal law enforcement officer
- certain Federal customs and border protection officer,
- certain Federal firefighter,
- certain air traffic controller,
- certain nuclear materials courier
- any member of the United States Capitol Police,
- any member of the Supreme Court Police, or
- any diplomatic security special agent of the Department of State.
- Private sector firefighters who provide firefighting services,
Notes:
- The age 55 exception does not apply to IRAs. Therefore, a participant who is eligible for this exception loses the eligibility if the amount is rolled over to an IRA
- The payor knows that you qualify for the age 55 exception, they are required to input Code 2 in Box-7 of IRS Form 1099-R, when reporting an early distribution that qualifies for the age 55 exception
