Thrift Plan/UPS stock-10 percent tax?

Discussion in 'UPS Discussions' started by JohnnyPension, Dec 12, 2006.

  1. JohnnyPension

    JohnnyPension Member

    I have my 55/25 from Local 804 and am taking the money and going to sunnier climes. I know when you are 55 and retire from the company the 401K and annuity monies are exempt from the 10 percent tax penalty. Is the money from the old UPS thrift plan that I rolled over into UPS stock at the mercy of the 10 percent penalty?

    Soon to be...
  2. brett636

    brett636 Well-Known Member

    Being that I wasn't working for UPS during the thrift plan days I cannot say this for sure, but I do prepare taxes for a living so here is my advice. The 10 percent penalty is only applied to early withdrawals of retirement savings before age 59.5. If you were collecting the earnings and or dividends from the plan while you let the money sit in stock then taking the money out will not hit you with a 10% tax penalty, you will only owe taxes on growth of the holdings while you held them. Basically its what you sold the stock for minus your basis, or what you paid for it.

    As far as withdrawing the money from the 401k, I believe you will be hit with a 10% tax penalty on that if the money was deposited pre-tax and you are not age 59.5. There may be a special rule about retiring and withdrawing the money early, but considering I do about 200+ tax returns per year I have not run into a situation where the penalty does not apply unless you are taking the money out to buy a house or fund an education.
  3. sendagain

    sendagain Member

    If you rolled your thrift plan into UPS stock, then you are in an IRA which will be penalized if withdrawn before age 59 1/2.
  4. JohnnyPension

    JohnnyPension Member

    Thanks for the info. A few of us are retiring at 55/25 and saw at the IRS site under:

    401(k) Resource Guide - Plan Sponsors - General Distribution Rules

    the following:

    Tax on early distributions. If a distribution is made to a participant before he or she reaches age 59½, the participant may be liable for a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income.

    Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances:

    Made to a beneficiary (or to the estate of the participant) on or after the death of the participant.
    Made because the participant has a qualifying disability.
    Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.)
    Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.
    Made to an alternate payee under a qualified domestic relations order (QDRO).
    Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions).
    Timely made to reduce excess contributions.
    Timely made to reduce excess employee or matching employer contributions.
    Timely made to reduce excess elective deferrals.
    Made because of an IRS levy on the plan., or
    Made on account of certain disasters for which IRS relief has been granted.

    It is that fourth line down that has us all intrigued. If I took the money out (and Im not really sure if I will) I would put it toward the down payment of my new home in Arizona. This is my second home so it would not help me there. I am going to call the IRS today to see if I can get an answer from them.

    If you should have any other ideas on this it would be appreciated. Know any good tax men in the east valley near Phoenix? I usually do my own but (Turbo Tax) but I think that this is all over my head. Thanks again.

  5. brownmonster

    brownmonster Man of Great Wisdom

    It would be a tough to decide between eating the 10% or working 4 1/2 years longer. Depends on the size of your nest egg I guess. I also assumed you could start taking 401k money at 55 as long as you seperated from the employer. I'll have my 30 years in at age 58 so I'm in an ok position. Now I just have to survive the abuse for another 12 years. I had hoped to get out at 55 but with the age reduction my pension would be about half. I'll probably have 3 adult children living in the basement anyway?!
  6. JohnnyPension

    JohnnyPension Member

    My timing is this -I have in 26 years as a driver than clerk and I turn 55 on Dec 31 of this year so I just missed the pension reduction by the hair on know the rest. I think the gods are telling me to go!! Another 12 years sounds painful. Good luck.
  7. ups79

    ups79 Active Member

    Why don't you either leave the plan as is or roll in into a traditional IRA? Once you reach the age 591/2 you then draw out what you need, if anything, and only paid the tax as if it is income.
  8. JohnnyPension

    JohnnyPension Member

    I am thinking of making my new mortgage as low as possible so I would be looking at that 401K to help there. This is my second house.

    I just got of the phone with the IRS and asked them about the age 55/401K question and after a few moments she came back on line and said to look at publications 590 and 575. It clearly states no 10 percent penalty if:

    "Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55".

    She said there would be no penalty, just the regular tax ( I myself would have the 20 percent taken out and deal with the rest at tax time).

  9. sendagain

    sendagain Member

    Ideally, you ought to leave it alone until you are forced to make withdrawals: allowing this money to grow tax free for another decade will be much better financially for a person than using it as soon as possible. It could potentially double in value in the next ten years.
  10. JohnnyPension

    JohnnyPension Member

    I agree. Just looking at all my options.

  11. brett636

    brett636 Well-Known Member

    You learn something new everyday. Just make sure that when you take those distributions that the people managing the 401k know that because you will still recieve a 1099R for that money you will withdraw, an it has a code on there that tells the IRS how its supposed to be treated. If they don't code it right the IRS may still try to hit you with the 10% penalty.
  12. It will be taxed at 15% capital gains
  13. Hawk780

    Hawk780 No One in Particular

    Can someone explain how the thrift plan worked to a relatively new employee? Thanks in advance.