Exception to paying the 10% penalty for early withdrawal of pension funds when over 55 and separated from service

[OStevenR]

By leaving service - is that meaning no longer working for that company?   I withdrew funds due to expenses I had after wife passed away. I am over 55 and no longer work for the employer with whom I had that pension. Do I still have to pay the penalty?

[CherylW]

Were you over 59 1/2?

[OStevenR]

no,  but no longer at that employer and used the money to help pay expenses after wife passed away

[dmertz]

The age-55 exception only applies to a distribution from a qualified retirement plan provided by an an employer from which you separated from service in or after the year you reached age 55.  If you did not reach age 55 by the end of the year in which you separated from this employer, you do not qualify for the exception.

If you qualify for the age-55 exception, the plan administrator would normally know your age and separation date and would automatically use code 2 in box 7 of the Form 1099-R reporting this distribution.

[CherylW]

I'm sorry for your loss.

You do NOT qualify for the penalty exception.  This, from Turbo Tax help:

You may not have to pay the additional tax if you took money out of a single-purchase annuity that provides equal payments (at least once a year). The equal payments have to begin within one year of the annuity purchase.

If this applies to you, enter the dollar amount you took out under these circumstances next to Other Reason. Then click Continue, and we’ll let you know how this changes your taxes.

If your reason isn't listed as an exception (on this screen or a previous one), you'll owe additional tax. This is true for most people who take money out of a retirement account before age 59 1/2.

Here are the exceptions (besides age):

1.  I took money out due to a qualified domestic relations order (QDRO)      

2.  I took money out of a section 457 plan      

3.  I stopped working for the employer by March 1, 1986      

4.  I took money out from ESOP employer stock dividends      

5.  I took money out of a deferred annuity contract