Q. If a client retires from a non-ERISA employer and (1) has a 403b and (2) is under the age of 59½, there is no 10% tax penalty. But if the employee were to return to teach a couple of classes part time, would the retired employee still be able to access funds, since the retiree is only working part-time and is under age 59½?
A. First, I will assume that the employee retired when they were age 55, which would mean that the 10% penalty would not apply if she were to take distributions from the plan now. If she or he returns to work, first you would need to look at the plan document to see who is eligible for the plan, meaning that she may no longer have a distributable event for future distributions. We are awaiting guidance from the IRS on how to treat a “rehired” employee who works less than 20 hours upon rehire but who was eligible before that. If we use the newer guidelines of “once in always in,” the retiree would immediately be eligible for the plan — and, therefore, no longer retired. On the other hand, if he or she only thinks that they may be rehired next year, there would be nothing to prevent a rollover to an IRA now.