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Permanently laid off. company relocated out of state.

will i have to pay penalty on my company pension not 401k if im 56 years old?

Apr 21, 2014 by john from Bedford, OH in  |  Flag
3 Answers  |  4 Followers
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3 votes

John, If you are thinking of beginning withdrawals from your pension plan, the tax code does charge a 10% penalty for certain withdrawals made before age 59 1/2. However, there are several exceptions to this rule that may apply in your case. First since this is a defiend benefit pension plan, if you elect to take your withdrawals in monthly annuitized or installments payments over your remanining life expectancy, the 10% penalty should be waived. Alternatively if you terminated from your company AFTER you turned age 55, you may be eligible for a waiver from the 10% penalty even for lump-sum cash withdrawals. I would advise you to seek tax counsel to clarify your individual circumstances.

1 Comment   |  Flag   |  Apr 22, 2014 from Houston, TX
john

thank you very much. i will seek advice from a tax professional.

Flag |  Apr 22, 2014 near Bedford, OH

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2 votes

Hi John, Sorry to hear about the loss of employment. Your employer should have vesting requirements that have to be met in order to collect a defined benefit pension. Assuming you meet that requirement there would not be any tax penalties just because of your age. The pension you receive will be taxed as ordinary income. Check with the employer to see what payout options you have. Good luck and feel free to contact me with additional questions.

1 Comment   |  Flag   |  Apr 21, 2014 from Medina, OH
john

thank you so much. i am fully vested having been there for almost ten years.

Flag |  Apr 21, 2014 near Bedford, OH

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2 votes

Hi again, there are different withdrawal rules for IRAs, 401(k) and defined benefit plans. The age 59.5 applies to IRAs, for 401(k) the age is 55. For your DB plan you have to have a certain amount of years combined with a minimum age requirement typically 55. Since you are 56, severed from employment and have 10 years of service you should ask the company to calculate your monthly benefit. If you have a lump sum option be careful what you do with it because different rules apply depending on what you do with the lump sum.

View all 4 Comments   |  Flag   |  Apr 22, 2014 from Medina, OH
Robert Arthur Massa

Finally, while I agree with most of Kent's comment, I disagree with the statement that the 59.5 rules only apply to IRAs. That is incorrect as Internal Revenue Code Section 72(t) applies to all qualified plans (401(k), DB, Cash Balance, Profit Sharing, etc.), IRAs, and 403(b) plans. So any withdrawals from a pension plan would be subject to the 10% penalty, UNLESS the withdrawal meets one of the many provided exemptions.

Flag |  Apr 22, 2014 near Houston, TX
Kent Michael Klingshirn

Since we are citing IRS Code Sections I refer you to Section 72(t)(2)(A)(v). John stated he is 56 and separated from employment. My comments were in answer to his question and I stand by my answer.

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Flag |  Apr 22, 2014 near Medina, OH

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