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10% Early Distribution Penalty Restrictions Loosened for Public Safety Workers

Last Updated:  July 28, 2015

10% early distribution penalty restrictions reduced for public safety workers

The Trade Priorities and Accountability Act of 2015 may shock you. Why? Because there’s a retirement plan distribution provision in a “trade” act. The new provision directly affects the distribution penalty for public safety workers. It actually allows them much greater flexibility with retirement planning and income.

Normally if you retire prior to age 59 and 1/2 you you’ll pay a 10% early distribution penalty on retirement account withdrawals. Current law provides an exception to the 10% penalty for individuals who terminate service after age 55.

The exception ONLY applies to company retirement plan distributions. If you roll your plan over to an IRA the early distribution penalty is still applicable. So just what’s in the new law and how does it help public safety workers retirement income planning?


Early distribution penalty exceptions

10% early distribution penalty lessened for public safety workers
The 10% premature penalty is waived for public safety workers like firefighters and police after age 50 now.

First off let’s cover just who this new rule applies to. The Act actually broadened the definition of “public safety workers”.

Public safety workers include:

  • state and local police,
  • firemen and EMS workers
  • federal public safety workers such as federal law enforcement officers and federal firefighters
  • air traffic controllers
  • border protection officers
  • certain customs officials


Public safety workers who retire after age 50 are exempt from the 10% early distribution penalty. This rule previously only applied to their government sponsored defined benefit pension plans. The Act changes the types of accounts public safety workers can withdraw from as well.


Types of retirement plan accounts affected

The Act extends the types of plans which can be distributed from. Previously only defined benefit plan distributions were eligible. The 10% early distribution penalty waiver now applies to defined contribution plans like your 401k or 457 plan.

The Act’s retirement plan distribution allowances go into effect for distributions AFTER 2015. Any distributions in calendar year 2015 are still subject to laws currently on the books. This 2016 requirement only applies to the actual distribution, NOT the actual separation of service date.

Essentially you could have retired at age 51 three years ago and your retirement plan distributions next year will enjoy the new allowances under the Act. Separation of service MUST have taken place after age 50 however.


Early distribution penalties and 72t distributions

The new loosened penalty provisions can be used in conjunction with rule 72t distributions. 72t distributions are an IRS provision which helps pre 59 and 1/2 retirees a waiver of the 10% early distribution penalty. The catch is they must schedule their distributions for a minimum of 5 years OR until they reach age 59 and 1/2.

The new 10% early distribution penalty waiver is mutually exclusive from the standard 72t distributions. Public safety workers can implement both waivers for their retirement income strategy.


What does this mean for you?

If you fall into the new broader category of a public safety worker, you have more options than ever before to create an early retirement income stream. Saving 10% in IRS penalties can go a long way towards boosting your retirement plan.

It’s key to make sure you understand the rules. The biggest rule you must be aware of is this 10% penalty waiver only applies to distributions from your work sponsored retirement plan. Rolling your retirement over into an IRA will eliminate the flexibility to take advantage of this provision.

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  1. Hi Greg,
    Thanks for the info. I can’t find any answers about my situation. I work on a 911 EMS ambulance that is a State contracted ambulance, but a private company AMR, is the provider of the service. Does this new TPA act of 2015 cover me and my company’s 401k plan. I am over 50 and would like to retire. Your help and clarification would be greatly appreciated.

    1. Hi Dean and thanks for the note! I believe the rule is ONLY for direct employees of the state. Technically, you’re an AMR employee so this new rule likely (I can’t say for certain without hours of research) does not apply to you.

      That being said, check with your HR department. Your plan likely allows the typical 55+ penalty free distributions provided you leave your plan funds where they’re at (i.e. don’t roll them to an IRA).

      You can also research the 72T rules. If you build the right strategy, you should be able to avoid most of the 10% penalty even if your particular 401k plan doesn’t qualify for the new rules.


  2. Hi Greg

    I am a fireman andI have a state pension in which part of it can be rolled out. My state also offers a 457 plan which I can roll that pension in to..If I separate and im above 50 and take a withdrawal from those funds will I still be exempt from 10% penalty?

    1. To the best of my knowledge, if the money is coming from the 457 plan the IRS won’t look at how it got there, and I don’t think they’d care anyway because the purpose of the law is to allow you to draw qualified funds to be withdrawn without the penalty, and your pension rolling into the 457 would be qualified funds as well. To be 100% certain, please talk with your tax planner, but I think it would be fine based on the spirit of the law.

  3. Greg, Thanks for the helpful article. I meet the “public safety worker” requirement and I’m hoping to retire in the “year that I turn 50,” I have a 457 as well as a 401, both of which are seemingly exempt of “early withdrawal” penalty.

    My issue lies in the fact that I want to roll the funds into another (self-directed) account (IRA or Solo K) so funds can grow through my chosen investments rather than the stock market. Do I have any options at all?

    Thanks for your Wisdom…

  4. I am a correctional officer in the state of Michigan. I was wondering do we fall under the federal exemption law

  5. Hi, I have a 401K from my previous company that matched my contributions. All of the funds are vested but I separated and left to join the local police. I am now in the Police and Fire Pension and am wondering if I should roll these funds over or keep them where they are. I did borrow from the 401K in terms of a loan but now I’m responsible for the full amount befor 90 days. The representative that I spoke with said I can withdraw any amount less the taxes to cover the loan balance so it does not get forwarded to the IRS as a taxable event and roll the remainder. I just wanted to know if this would be a smart move or would I lose flexibility if I indeed went with that split option.

    1. #1 you should pay off your 401k loan first and foremost. If you don’t it’s going to be taxed and penalized depending on your age. #2 it’s highly likely the buying power of your police and fire pension will provide you a great 401k/457 plan. You should strongly consider rolling your funds into that plan if the plan allows for it.

      Finally I’m unclear on your comment about what the rep said. I wish I could help with that one but it doesn’t quite make sense to me.

  6. Greg,
    I’m a Pennsylvania State Corrections Officer. I plan to retire at 50 and to withdraw my contributions in a lump sump while still drawing a monthly defined benefit payment, only reduced. My question is does this public safety employee exemption apply to the withdraw of that lump sum? I also don’t see anywhere that states “corrections officers”. I have been assuming we are eligible also…?

    Thanks for your time!

    1. I’m not positive Jason. You’d need to check with your accountant or attorney. Also if you withdraw funds and roll into an IRA you will have to pay the 10% penalty on the withdrawals. You would likely be better off leaving the funds in your plan.

  7. Hello. Trying to get an understanding of this penalty exemption. As long as my employer holds on to my retirement funds not an IRA, I won’t get penalized. If I roll my money into an IRA and do an early withdrawal the early withdrawal fees applies?

    1. Depending on your age that is correct! If you remove funds prior to 59 and 1/2 from an IRA there is a penalty no matter what. If you leave the funds in the plan, the penalty may be avoided based on age and your plan specifications.

  8. Hello Greg,

    I m going to have to retire soon ( 10 ) months from Orlando Fire Department. I love my job and I’m still at the top of my game but 30 years is the maximum time for a combat firefighter is 30 years. I’ll be 52 when I leave. I have some money in the 457 plan however… I’ll have a substantial amount in my drop plan. Can I roll that over into my 457? I have to put it somewhere when I part ways.

    1. Hi John and thank you for your service! My brother is a captain in the fire department as well and we appreciate what you do.

      Unfortunately, I don’t know what a Drop plan is. You would need to contact HR and get the number for your 457 plan specifically to ask them. Wish I could be of more help!

      1. Hi John, Your DROP account falls under the 401(a) rules for IRS purposes. Once you separate service from your department you can roll your DROP account into you 457. Since you are over 50 the funds are available to withdraw without the 10% early withdraw penalty.

  9. I retired from NC state law enforcement November 2017. I was 55 years old with 30 years of service at the time I retired. In January 2018 I made a withdrawal from my 401k plan. I’m exempted from the 10% penalty correct?

  10. Hi Greg!
    In May of 2017, I retired from Law Enforcement in NC at age 48. I’m now 50 and would like to know if I can withdraw from my 401K without the 10% penalty.

      1. Check with your tax person or HR at your department. The way I read the Rule, the LE officer must separate service after age 50 to be exempt from the 10% early withdraw penalty. Since you separated service at age 48, then you may not qualify for the 10% penalty exemption. I see your post was from 2017, so if you see this post, and I am wrong please let me know.

  11. Does this apply to all state LEOs like corrections/courts? How broad is the definition and who answers that at the IRS? Would I be able to liquidate 401 AND 457 at 50 upon separation of service?

    1. I believe it does apply to LEO’s as you mentioned, but I would defer to a CPA as I think it would be something they could answer at which point it may or may not be challenged by the IRS. The penalty-free distribution would only apply to your workplace retirement plan—so your 457 plan most likely. Keep in mind you would need to separate from service AND leave the plan intact to avoid the 10% penalty. Also remember you’ll still pay taxes, but you may very well be able to avoid the 10% early distribution penalty.

      1. I retired after 25 years of service in law enforcement. We have a 25 and out plan. The retirement was a 457 plan that allows us to draw our retirement immediately after we retire. I was 47 when I retired and have had to pay a penalty each year until I was 50. Is this typical or should I not been paying this penalty?

        1. Brett, if your 457 is a 457(b) then you should be able to withdraw funds without any penalty once you separate service from your department. That is the benefit of a traditional 457(b). Once people separate service, no matter their age, they can take distributions from their traditional 457(b) without an early withdrawal penalty. Remember though, you will pay ordinary income tax on any money you take out during the year.

    1. Hey George! I would say with the spirit of the law and what they’re trying to accomplish the answer SHOULD BE yes, that being said, you would need to check with your provider. Oftentimes nuances in these laws make little to no sense at all when the spirit is truly to allow you do retire early with no penalty.

  12. Hi Greg – I’m wanting to retire at 47 yrs old, police officer for 25 yrs, Defined Benefit Pension with a Cost of Living Adjustment, do I qualify for an exemption to the 10% tax as a result of the “substantially equal periodic payments” clause or does the COLA ruin that for me? If it does get ruined by the COLA, when does the 10% tax end – at 50, 55, or 59.5? THANK YOU!

    1. Chris, First of all, THANK YOU FOR YOUR SERVICE! I’m always very appreciative of our first responders and everyone who serves our country.

      The 10% penalty I was referring to is for early distributions from a retirement plan like your 457 plan or a 401k plan etc. This is separate from your pension AND separate from SEPP’s under rule 72T.

      So the short answer is you’re confusing three things it sounds like. You won’t have a penalty on your pension income, after age 50 you shouldn’t have a penalty on your distributions from a 457 plan. You should NOT need to set up SEPP’s under 72T. Of course, I’m inclined to put the obligatory “please consult with your tax advisor” here because I’m NOT a CPA and these are tax-related matters.

      1. I’m in a very similar situation to Chris and I am confused by your answer to him. I can retire after 20 years with a pension as a Corrections Officer. However, I am worried that doing so would mean I would pay an extra 10% tax on my monthly pension income, because I would only be 48 years old. My pension plan is qualified under 401 (a) of the Internal Revenue Code. It is a “defined benefit plan”. Is pension income not referred to as a distribution? What’s the difference between the two?

        1. Patrick you’ll need to doublecheck this, however, in my opinion your pension income is completely different than a retirement plan distribution which would potentially be subject to penalties for early withdrawal. Check with your HR department, but if you start your pension at age 48 I do NOT believe that would be subject to the 10% penalty. If you withdrew money from your retirement plan at 48 you would be however.

          Best wishes!

  13. HI Greg..thanks for the great article.

    I retired back on October 31, 2019, with 25+ years as a Federal Firefighter and LEO at age 50. I took a withdrawal from my govt 401k and was taxed the 20%. I am certified as a public safety official so I do not have to pay that extra 10% as I was charged- and it actually reflects that on my 1099 from my 401k (TSP). How do I go about getting that 10% back from the feds? I have searched the TSP website (my 401K program) as well as the IRS website at length and have not been able to find the answer. Thank you in advance!

    1. Hi Dede, First of all, thank you for your service! Second, I think you may be confusing the withholding for the taxes and/or penalties. If you take a distribution they will typically withhold that 20% – that’s normal. That being said if I’m correct and they just WITHHELD that you may very likely get a portion of that back after you file your income taxes. In effect, you shouldn’t call it a “tax”, it’s just withholding on your tax obligations. I hope that helps and thanks for the question!

      1. Greg, thanks for the fast response..and thanks for explaining and clarifying..you are CORRECT- they automatically withheld the 20%. I was hoping the case would be that the portion would come back to me after my taxes are filed- as that seemed like the easiest way..but wasn’t for sure. THanks so much! I found this website with a google search and have now bookmarked it. Again..thanks,!

  14. Greg, I am a federal law enforcement officer planning to retire within two years. I understand that I will lose the 10% penalty waiver if I rollover my work sponsored retirement plan into a 401(k) and take distributions. Does the 10% penalty waiver still apply if I do it the opposite way, rollover my 401(k) into my work sponsored retirement plan and take distributions? For example: rollover a 401(k) into the federal plan, Thrift Savings Plan(TSP), and take distributions without the 10% penalty.

    1. Leon thanks for the question but that’s a tough one. You need to check with your plan administrator to make sure they’ll accept the rollover and verify that penalty is waived. I’ve heard different answers on this question, and ultimately it’s the IRS that will come after you for the penalty. You could start with a CPA, but it’s unlikely a CPA would know, unfortunately. Most CPA’s don’t even know it’s waived for public service workers retiring after 50. I wish I could be of more help but I’m just not positive on this question.

      1. HI Leon,

        I was in law enforcement for over 20 years and left the business at age 47. I had a 401(a) and 457(b). I rolled my 401(a) and 457(b) from my previous department into my new employer’s 457(b) plan. I work for a state governed agency now, so it qualifies for a 457(b). When I rolled both accounts over my new record keeper tracks the money from my 401(a) and 457(b) separately within my account. They also track my new contributions to my 457(b) separately as well. Since I separated service from law enforcement before age 50, my 401(a) is not exempt from the 10% early withdrawal penalty if I take distributions from the 401(a) portion before age 59 1/2. But, once I retire from my current employer, even if before age 59 1/2, I can start taking distributions from the 457(b) portion of my account without the 10% penalty. My 457(b) is a traditional account…not a Roth. Roth accounts have different withdrawal provisions. My long story is an example to say you cannot move a 401(k) into your work account to avoid the 10% early withdrawal penalty.

      2. If you roll your 401K into your current employer’s plan, then leave the employer the year you turn 55, then you can take the money without the 10% penalty. Just remember you have to leave the year, or after, the year in which you turn age 55. Check IRS.Gov Topic 558.

  15. I am a federal air marshal and will retire this year with 25 years of 6c. I will be 48 years old. Since I am not 50 years of age will I be eligible for my TSA with no 10 percent penalty in 2 years when I turn 50 or does the exemption skip over me and I have to wait until I am 57 which is my MRA age??

  16. Greg, I messaged you about this time last year, and the same question still stands- just to confirm… I took a withdrawal from my 401 K. I retired under 6c (LE/Firefighter). They withheld the 20% and I am trying to get the money back (the 10% early withdrawal) since i am exempt from that.

    I filed my taxes for 2020 in February of 2020. I have not received anything back as far as a check goes. I am not sure if I need to do an amended tax return, since my 1099-R block 7 , “2” is listed as my exemption. I checked with TSP (who my 401 K is with) and my retirement is designated correctly- that I fall under LE/FF retirement . I have asked my tax preparer and this is a new one on him. I have searched for some time, read many IRS publications, etc and can’t seem to find the answer. I am not sure if I need to file an amended return or wait until the IRS catches up with their backlog and expect some automatic refund to be generated.

    If it’s easier for me to make an appointment with you to discuss this via phone or video I can do that. Thanks in advance! Dede

  17. Hi Greg,

    I retired at 52 after 28 years as a county law enforcement Captain. I contributed approximately 100k from my payroll deduction into deferred comp, and also rolled over my DROP into my 457g account upon separation. I recently took a $40k withdrawal and my 457g trust (Nationwide Retirement Solutions) informed me that they withdrew the $40k from the rollover portion, which they say they are unable to apply the Public Safety Officers Exception. I was assessed the 10% penalty consequently. When I spoke with Nationwide’s tax “specialist,” he cited an rule that excludes the rollover portion from the PSO Exception. He also stated that if I had withdrew it from my payroll deduction, the PSO exception applied. I looked through the IRS code and see that rollovers into a 401k are excludes from the PSO exception, but cannot find where the exclusion does not apply to a rollover to a 457g. Can you point to any IRS publications that can clarify this? Thanks for all this great advice!

    1. Zachary I don’t know of any specific IRS citations on this. I do believe they are correct in their assessment that since it came from the rollover it wasn’t privy to the same benefits as payroll deduction. That being said, I’m not 100% certain on this, however I do believe it’s accurate since you had the rollover and it was under a different set of rules.

  18. I retired in 2015 from local law enforcement with 25 years credible service at the age of 55. To make ends meet, I would withdraw from my 401k from time to time. Each and every time I requested a withdrawal, I was penalized 10%.

    I'm just now finding out I was actually exempt from the penaly according to The Trade Priorities and Accountability Act of 2015?


    1. I don’t know about that specific act, but if you left the money IN THE PLAN (meaning you didn’t roll it over into an IRA) you should not have been penalized. This would be worth having a CPA look into and re-file your older tax returns to get the penalty monies back if possible.

    1. You can take the entire deferred comp out (457 plan) and avoid the 10% if you qualify by separating service after age 50.

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