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By Andy Ives, CFP®, AIF®
IRA Analyst
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When IRA or retirement plan assets are withdrawn prior to age 59 ½, an early distribution penalty of 10% applies – in addition to any taxes owed on the distribution. However, there are exceptions in some cases, including the age 50 exception. While SECURE 2.0 expands this 10% penalty exception for public safety workers, the new law also creates a question.

The age 50 exception is available to federal, state and local public safety employees. It applies to work plans only – like a 401(k) – but does not apply to IRAs. When a plan participant engaged in a specific profession is 50 years old or older in the year she separates from service, she can take withdrawals from that employer’s plan. The distributions will be subject to tax but no 10% penalty. This group of employees includes law enforcement officers, public firefighters, emergency medical service workers, certain customs officials, border protection officers, air traffic controllers, nuclear materials couriers, U.S. Capitol Police, Supreme Court Police, and diplomatic security special agents of the Department of State.

SECURE 2.0 expands this exception to include private sector firefighters, corrections officers who are employees of state and local governments, and forensic security employees providing for the care, custody, and control of forensic patients. Additionally, the law extends the age-50 exception to public safety employees with at least 25 years of service with the employer sponsoring the plan. These expanded exceptions are effective for 2023.

Example: Barbara is an emergency medical service worker (which is a profession covered by the age-50 exception). She started her career at age 22. Now Barb is 47 and wants to retire due to health concerns, but the bulk of her assets are tied up in her workplace retirement plan. Prior to SECURE 2.0, Barbara would have had to wait to separate from service in the year she turned 50 or later in order to access her work plan dollars without penalty. However, with the expansion of the age 50 exception, Barbara can leave her job at 47 and still take advantage of the age 50 exception because she has 25 years of service with the employer sponsoring the plan.

UNKNOWN: Assume Barbara had spent her first 20 years as an emergency medical service worker, and then took a new job as a “forensic security employees providing for the care, custody, and control of forensic patients.” She rolled over her work plan from her first job to the plan sponsored by her new employer. After 5 years at the new job and at age 47, it is unknown if Barbara would still qualify for the “25 years of service” and the expanded age 50 exception. The issue is that the language in SECURE 2.0 indicates the exception applies to those “with at least 25 years of service with the employer sponsoring the plan.” While Barbara worked in approved professions for the full 25 years, it is unknown if her participation in two different plans during that period disqualifies her.

NOTE: If Barbara is disqualified from leveraging the “25 years of service” stipulation, she could wait to separate from service at her new job at age 50. At that point she would have full access to her plan funds without penalty. This includes all the dollars she rolled into the new plan from her first job, because they are all under the umbrella of the current plan where Barb properly separated from service at age 50 or later.