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Penalty Tax on Early Distributions from Investment Plan for Qualified Public Safety Employees

Under the Investment Plan, participants may choose to receive their account balance at termination of employment as a lump sum or to take periodic distributions. Generally, the amount an FRS participant withdraws from a qualified retirement plan before reaching age 59½ is called “early” distributions.  Generally, participants must pay a 10% early withdrawal penalty and report the amount to the IRS; however, there are some exceptions.

In 2006, President Bush signed the 2006 Pension Protection Act. One of the provisions of the Act was to allow “high risk” or Qualified Public Safety Employees to receive distributions from a qualified retirement plan without a 10% early distribution penalty if the participant retired or separated from service after age 50.  A “high risk” or Qualified Public Safety Employee would be considered those who provide police protection or fire-rescue services for a State or municipality.

Participants should consult with a tax advisor prior to making any distribution from their retirement plan. For further review of exceptions,  please visit http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Tax-on-Early-Distributions.

Should you wish to discuss this, please call Silverman Financial at 1-888-229-7163.