Question

Early distribution of 401K penalty exceptions

Forum|Forum|7 years ago
June 6, 2019
1 reply
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I turned 54 in early January 2017 before I was laid off work January 27, 2017. I was at the company for 14 years. I took money out of my 401K to pay my mortgage, bills and insurance. My wife is not working and she was over the age of 55 at the time of my separation. Can I use the early distribution exemption for separation with my employer to waive the 10% tax penalty? I've already paid the mandatory 20% tax plus an extra 2% when I withdrew my funds.

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DoninGA

Employee

You have to be age 55 in or after the year of separation from the company that held the 401k to be exempt from the 10% early withdrawal penalty.

IRS Tax Topic 558 - https://www.irs.gov/taxtopics/tc558

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55

D

dmertz

Employee

So the answer is No, you do not qualify for the age-55 exception for distributions from the 401(k) provided by the employer from which you separated from service in the year prior to the year that you reached age 55.

Your wife's age is not relevant to penalty exceptions for distributions from your retirement accounts.