(b)lines Ask the Experts – A 54-Year-OId Avoids the Early Withdrawal Penalty

January 18, 2011 (PLANSPONSOR (b)lines) – “I have a bet with a colleague that I will buy her a fancy lunch if it is possible for an individual who has terminated employment at age 54 to receive an immediate distribution from his/her 403(b) plan and NOT pay the 10% premature distribution penalty tax under 72(t).”

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:    

Feel free to make those reservations at the fancy restaurant at any time! In fairness to you, this is a tricky issue, as the premature distribution penalty for retirement plan distributions under IRS Code Section 72(t) is often misunderstood. The 10% penalty is waived for distributions taken on or after the attainment of age 59 1/2. But if an individual terminates employment on or after age 55, and takes a distribution from the employer’s plan, the 10% penalty is waived as well.  

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Then why did you lose the bet, since the employee in question was only 54 years of age? A somewhat obscure IRS notice from 20+ years ago (Notice 87-13) clarified that it is possible for 54-year olds to take advantage of the exemption from the 10% penalty tax as well. Here’s how it works; if the termination of employment occurred during the CALENDAR YEAR that the employee turned age 55, then the 10% premature distribution penalty would be waived for distribution under that circumstance as well. Thus, it is possible to be 54 years old today, terminate employment, turn 55 prior to 12/31/2011, and receive a distribution anytime following termination of employment that is exempt from the penalty tax. Thus, you lose the wager.  

Thanks for the question, and be certain not to wager any more meals before checking with the Experts!  

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

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Kansas AG Keeps Campaign Promise to Take on Health Care Legislation

January 14, 2011 (PLANSPONSOR.com) – The state formerly led by Governor, now Secretary of Health and Human Services (HHS) Kathleen Sebelius has asked to join a lawsuit challenging the health care reform legislation. 

 

Just two days after taking office, Kansas Attorney General Derek Schmidt sent a letter to Florida Attorney General Pam Bondi requesting that Kansas be allowed to join the multi-state lawsuit challenging the constitutionality of what he termed “the Obama/Pelosi health care law”.  Schmidt said joining this lawsuit will be one of his first official acts as attorney general. 

“This lawsuit is about standing up for the rule of law and protecting the liberties guaranteed by our Constitution,” said Schmidt, who had promised during his campaign to bring Kansas into the legal challenge. “Our federal government is designed to be a government of limited, enumerated powers, and we do not believe it has the power to order citizens into commerce so it can then regulate their conduct under authority of the Commerce Clause. Whatever the merits or demerits of health care reform, the ends cannot justify an unconstitutional means.” 

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Schmidt requested that Florida file a motion asking the federal district court in Pensacola, Florida, to allow Kansas to join the 20 states that originally brought the lawsuit. Ohio, Wisconsin and Wyoming are also requesting to join the suit. The litigation also includes the National Federation of Independent Businesses and two individuals. 

If the motion is granted, the total number of states challenging the constitutionality of the health care law will grow to 26; 24 in Florida, and Virginia and Oklahoma each bringing separate lawsuits, according to Schmidt, who said he anticipated the novel constitutional question raised by the federal government’s “unprecedented power grab” in the health care law would eventually be decided by the United States Supreme Court. 

“The legal precedent that will be set in this case will reach far beyond health care,” Schmidt said. “This is an historic defining of the relationship among our federal government, the states, and the liberty of individual American citizens. For those of us who believe that not all wisdom resides in Washington and, therefore, neither should all power, this is a constitutional fight worth fighting.” 

In addition to Kansas, Ohio and Wyoming have also asked to join the state AG suit, while Oklahoma has recently announced its intention to file an independent challenge to the legislation (see Sooner State Takes on PPACA Individual Mandate – Alone).  To date, two federal judges have ruled that the legislation is constitutional (see Judge Declares HCR Law Constitutional , Liberty College HCR Challenge Dismissed ), one has rejected that argument (see Judge Strikes Down HCR Coverage Mandate ), and the federal judge in Florida who is hearing the case brought by the 20 states has not yet ruled ( Court Green Lights FL HCR Challenge ).  

More information about the challenge is available at https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=6442472412 

 

 

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