Pension

[Lakeshow]

What is the name of your state? California Hello,
I’m 55 years old, and have a pension from an old employer that I want to start receiving. It has the usual different options available. Single Life Annuity, 55% Surviving Spouse, Life with 10 Year Certain, and some others. They just added a new option called a 5-Year Period Certain Option. Receive 60 equal monthly payments , and then no more. Would I have to pay a tax penalty for this option since it’s not equal payments for life, and I’m only 55? Thanks for any help you can offer.

 

[Taxing Matters]

Would I have to pay a tax penalty for this option since it’s not equal payments for life, and I’m only 55? Thanks for any help you can offer.

You will be subject to the 10% early withdrawal tax (what most people call a penalty) for the distributions you take before reaching age 59½ unless you take the distributions in substantially equal payments over the rest of your projected life time or some other exception applies. See IRS Publication 575. There is no exception for taking a 5 year payout starting before age 59½. In short, just based on the very few facts you gave, you'd have to pay the penalty.

 

[ShyCat]

My husband accepted early retirement at 55, selecting the option of his pension paying out a larger monthly sum up to age 62 when he could start early SS retirement benefits. The 1099-R forms that we received each year from Fidelity were coded such that any early withdrawal penalty did not apply. Note that this was a traditional defined-benefit pension plan, not at defined contribution plan such as 401(k).

 

[Taxing Matters]

My husband accepted early retirement at 55, selecting the option of his pension paying out a larger monthly sum up to age 62 when he could start early SS retirement benefits. The 1099-R forms that we received each year from Fidelity were coded such that any early withdrawal penalty did not apply. Note that this was a traditional defined-benefit pension plan, not at defined contribution plan such as 401(k).

That worked because he retired from service with that employer while being age 55 or older. That's another exception to the early withdrawal tax. But the OP is age 55 and wants to take his/her pension from an "old employer". That suggests he/she separated from that employer prior to turning age 55. If he/she worked for the government it would work if the OP was age 50 at separation rather than 55. If the OP separated from that employer before age 55 (or age 50 as the case may be) then that exception won't help him/her. In any event, we don't have sufficient facts here to know if some exception might apply. But the OP will find a discussion of all the exceptions in the publication that I linked, and if the OP has further questions about any of them he or she can of course ask those here.