Separation from Service

[SJT2020]

I'm 59 years old and was placed on part-time variable status with my employer. 

I was allowed to collect unemployment and look for work elsewhere without conflict of interest.

I took out money from my 401K  and box 7 displays code 1 on my 1099R 

I am now 59 1/2 and filing my return.  

Does my situation qualify as Separation from Service during or after age 55?

Can I avoid the 10% tax penalty? 

[MinhT1 · Accepted solution]

Yes. Your early withdrawal qualifies for the Separation from service after age 55 and is exempt from the early withdrawal penalty of 10%.

Please read this TurboTax Help topic for more information.

In TurboTax, please follow these steps:

1. After you have entered all your forms 1099-R, on the summary page Review your 1099-R Info, click Continue
2. Follow the interview until you arrive at the page titled These situations may lower your tax bill
3. Enter the amount of the distribution in the box next to Separation From Service the Year After Age 55 and click Continue
4. Your early withdrawal penalty will be waived.

[SJT2020]

Given this same situation  I'm filing my State taxes for Pennsylvania.  I'm asked to select a State Type code.   Which State Type Code should I select?  

Am I able to select "Traditional or Roth IRA: I am over 59.5"? 

If not, which Code should I select? 

[BillM223]

Are you taking a distribution from a "Traditional or Roth IRA" or from some sort of pension? Your question suggests that you are trying to describe the type of distribution for the state of Pennsylvania to avoid PA tax - so what kind of retirement account or plan is it?

@SJT2020

[SJT2020]

@BillM223   It was from a 401K  (see information in my original question) 

[BillM223]

A 401(k) is not an IRA of any sort, so we can't choose that.

Was this 401(k) plan from a private employer?

If so, you have two choices:

* I'm eligible, plan's eligible (no PA tax)

* I'm not eligible yet, plan's eligible in PA

The plan being eligible in PA means that the plan is consistent with PA rules - the odds are high that any 401(k) does.

The eligible part is asking if you have reached the retirement age for the plan - note that this is not the 59 1/2, but whatever the "normal" full retirement age is for your 401(k) - you may have to call the plan administrators to find out, because the normal full retirement age can vary quite a bit among plans.

If in 2020 you were younger than the full retirement age for your 401(k) plan, you would answer "I'm not eligible yet, plan's eligible in PA". Otherwise, you would answer "I'm eligible, plan's eligible (no PA tax)".

Make sense?

[SJT2020]

@BillM223 

I'm not sure I understand who the plan administrator is?

It was a 401K managed by Merrill Lynch.

Would I contact Merrill Lynch or would it be someone specifically from the company I worked for? 

[ToddL99]

Contact Merrill Lynch - if they are managing the 401K, then they may be the "plan administrator". If not, they will know who the plan administrator is and how to contact them.

From Who Is My 401(k) Plan Administrator?

Asking Human Resources is typically the most straightforward way to find your 401(k) administrator and figure out who manages your retirement savings account’s day-to-day activities.

The employer is almost always the plan sponsor. Typically, the sponsor hires a third-party administrator to oversee the accounts. Sometimes an individual, internal board, or appointed group of trustees will serve as the plan administrator. From a risk management standpoint, the employer should not double as both sponsor and administrator.

If you have a Summary Plan Description handy, you can easily check who signed the return as the Plan Administrator. At the Department of Labor’s website, you may also search, request, or download a copy of Form 5500.

@SJT2020