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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3153
Experience:  EA, CEBS - 35 years experience providing financial advice
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My husband was downsized from his employer last ...

Resolved Question:

My husband was "downsized" from his employer last year. He is 55 yrs old. We took most of his IRA/401k and rolled it over into another brokerage firm. Part of his retirement plan included a cash balance plan, which we rolled over part of it and cashed out some of it. We took most of the amount we cashed out and bought a CD (so I mistakenly thought we would not have to pay the extra 10% penalty on). I have since read in papers that were sent to us by the investment firm used by his former company, that an exception to the rule regarding cashing out before age 59 1/2 is, "If the person has seperated from his employer after or during the yr that they turn 55, that they would not have to pay the extra 10% penalty. Is this true?
Submitted: 9 years ago.
Category: Tax
Expert:  Bill replied 9 years ago.

Yes that is true. The 10% penalty does not apply if your husband was age 55 or older during the year that he separated from service and the distribution was made from a qualified plan (401(k), cash balance, etc.). The exception is not available for distributions from an IRA.

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