Q. My competitors insist that the IRS 10% penalty will apply to a 403(b) plan participant who left the employer in the same year as the 55th birthday, but before the participant actually attains age 55. The competitor says that Internal Revenue Code Section 72(t) does not say that attaining age 55 in the same year as severance causes the penalty tax to be waived. Is this correct?
A. The IRS issued Notice 87-13 to clarify that severance of employment in the same year as the 55th birthday is sufficient to waive the penalty. Your competitors are wrong.