News & Information

 

FEATURED PRODUCT

U.S. Master Pension Guide, 2012 Edition
Part of CCH's Master Series of professional guidebooks. The book provides a comprehensive explanatory overview of qualified retirement plans and other retirement arrangements, reflecting up-to-date law changes and regulations. Benefit COLAs, calendars, and tables reflect the year 2012 figures.

Learn More »

CCH® PENSION — 12/19/11

Age-55 exception to early withdrawal tax applies to date that employee separated from service

The "age-55 exception" to the 10% additional tax on early distributions from a qualified retirement plan relates to the date of separation of the employee from his or her employer, not to the date of the distribution from the plan, the U.S. Tax Court has ruled.

Code Sec. 72(t)(2)(A)(v) states that an individual is not liable for the additional 10% tax if the distribution from the qualified plan is "made to an employee after separation from service after attainment of age 55." Although the individual was only 53 when she separated from service from her employer, she was 55 when she took the distributions from the plan; therefore, she argued that she fell within this exception.

The court held that the "law is clear" that the age-55 exception relates to the date of separation of the employee from his or her employer, not to the date of the distribution from the plan. The court noted that the legislative history for the age-55 exception contains an example, very similar to the case at hand, whereby a taxpayer who was less than 55 at the time of his separation would not be eligible for the exception, even though the distribution was made after the taxpayer had reached age 55.

Source: Watson v. Commissioner (TC).

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.