Question

In order to avoid a penalty for early distributions of a defined contribution plan, an employee can NOT take a withdrawal from the account before he meets which of the following age requirements? (Check all that apply.)

a) 55
b) 59^1
c) 62
d) 65

Answer 1

To avoid penalties for early withdrawals from defined contribution plans like 401(k)s and 403(b)s, employees should wait until they are 59½, or 55 under certain employment conditions.

Step-by-step explanation:

In order to avoid a penalty for early distributions of a defined contribution plan, such as 401(k)s and 403(b)s, an employee should not take a withdrawal before reaching the age of 59½ under standard tax regulations. Withdrawals made before this age are generally subject to an additional 10% early withdrawal tax unless specific exceptions apply. The age of 55 can be another benchmark, but only for employees who leave their job in or after the year they turn 55. Therefore, the appropriate ages to avoid penalties for early withdrawal from a defined contribution plan are:

• 59½ (standard age to avoid penalties)
• 55 (only if leaving employment in or after that year)

Age 62 and 65 do not have specific rules preventing penalties for early withdrawals in the context of defined contribution plans.