Early Withdrawal from regular 403b at the age of 55

[taxesohmy2017]

I have a question for 2022 tax season. I am 55 years and want to leave my current job due to health related issues. I have a 403b (not a ROTH 403b) that I have with my current employment and will be cashing it in. I know its taxable income however I am not sure about the 10% early penalty fee on the Separation from Service Age of 55 or older.  

I work at a Hospital and have been working there for over 20 years, however throughout my employment there the Hospital has changed names several times by either buyouts or by joining large corporations. And my department was sold to Company B from Company A.  Company A is where all my 403b contributions were made from.  When Company B took over, I opted of contributing to 403b. I am still actively working at the same hospital I started at 20 years ago.

From the IRS publication in regard to Separation from Service age 55 or after.  The rule of 55 is an IRS policy that allows workers to take early withdrawals from their employer-sponsored retirement accounts, such as 401(k)s and 403(b)s, at age 55 or older without paying a 10% penalty provided that they leave their jobs.  It only applies to accounts you have with your current employer.

My question is on the current employer that has me baffled.  Because the company was bought out does that disqualify me on the exemption of the 10% penalty of Separation of Service at age 55? or since I remained there and new owners came took over, I would still qualify for the 10% exemption from Separation of Service? 

I made all my contributions under the old company names, when the new company came on a board, I opted out contributing to my 403b. Would I still qualify for the for Separation of Service on this part as well, I made it under the old company name but not the new company name?

I want to make sure I have the right amount of Federal Withholding taken on the distribution. The amount of the distribution is $107K, so knowing if the 10% penalties applies or not is not being taken lightly by me. The 10% penalty is $10.7K, so I need if I should have the extra $10.7K Federal Withholding taken out or I don't need to since I qualify for the exemption.

Thank you in advance for your assistance.

[tagteam]

@dmertz 

[dmertz · Accepted solution]

After separation of service, distributions from the plan maintained by the employer from which you separate from service in or after the year you reach age 55 will be eligible for the age-55 penalty exception.  However, based on what you said, the plan from which you propose to take the distribution is maintained by a former employer, not your current employer, so this exception would not apply.

If your current employer has a 401(k) or 403(b) plan to which you could do a rollover from the 403(b) at the former employer, you could then use the age-55 exception on a distribution from your current employer's plan after separation from service at your current employer.