'Qualified public safety employee'

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Q. I retired December 2010, at age 53.  I would like to withdraw my 401(k) but understand the penalties involved since I separated before age 55.  Under “exceptions” in the tax code there is a “qualified public safety employee” exception to the rule.  Do 6C government employees fall under this?

A. To the best of my knowledge, the qualified public safety employee exception only applies to defined benefit pension plans, not defined contribution plans like the TSP or a 401(k). A bill to change this – HR 6157 – was introduced in 2008, but never made it out of committee.

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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

1 Comment

  1. Richard Graham on

    Concerning the 10% penalty on early withdrawals from your TSP if you retire before the year in which you turn 55. The PPA of 06, says police, firefighters, etc, are exempt the penalty if you retire after age 50 vs 55.

    I talked to RABAS, they had no answer and referred me to TSP. TSP agreed, but said it was not a TSP issue and referred me to the IRS. TSP said they only withhold taxes and do not take the 10% penalty out of withdrawals.

    I called the IRS and they were very helpful. I talked to an agent in the pension/retirement section and he agreed that the 10% penalty would not apply to FED LEOs, firefighters, etc even though the PPA of 06 did not specifically list them. He referred me to US Code Title 42 Section 3796B for the definition of a “Public Safety Officer” that is referenced in the PPA of 06.

    The IRS agent said when you file your taxes, you can claim the exemption to the early withdrawal penalty.

    I emailed Scott Thompson at My Federal Times in Feb 2011 and got the below response:

    We cannot provide tax advice, however here is something we feel you should be aware of.

    Below is a link to the IRS Notice explaining that for government defined benefit plans (like CSRS and FERS annuities) pre-age 55 withdrawals are not subject to the 10 percent early withdrawal penalty. But the waiver of the 10 percent penalty does not apply to defined contribution plans like the Thrift Savings Plan.

    Here is the link to the IRS Notice:

    http://www.irs.gov/irb/2007-05_IRB/ar11.html

    We are only providing information for you on the topic for your consideration, and recommend you consult a rtax advisor on the issue to clarify.

    I read the link he sent. I then contacted the IRS again to confirm that FED LEOs are exempt the 10% penalty if they withdraw monies from the TSP when they retire before age 55. As an LEO we are exempt the penalty when you retire after age 50 vs. age 55 as we meet the definition of “public safety officer.” I attached the most recent IRS publication that the IRS representative referenced. I specifically referenced the TSP to her and she said it met the definition. Anyone can call the IRS and explain their retirement scenario to them. They were very helpful. The key is when you get your 1099-R. If it is coded “2” you are ok, if it is coded “1” then you have to fill out an additional form, which indicates why you are exempt.

    A confusing issue, but on a good note a retired agent filed the extra form with IRS last year and as they say so far so good.

    Dick

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