Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 30, 2026. Quick answer: IRC §72(t)(2)(A)(v) exempts from the 10 percent additional tax a distribution “made to an employee after separation from service after attainment of age 55.” Then §72(t)(3)(A) removes it: “Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.” The exception belongs to the employer plan and does not travel with the money. Roll the lump sum to an IRA before you need it and you have thrown the exception away.
Two provisions, and the second one is the whole page
§72(t)(1) imposes the charge: tax “shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.”
§72(t)(2)(A)(v) exempts distributions “made to an employee after separation from service after attainment of age 55.”
§72(t)(3)(A), headed Certain exceptions not to apply to individual retirement plans: “Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.”
The sequence in (A)(v), which is not the one people describe
Read the words in order: “after separation from service after attainment of age 55.” There are two events and the statute puts them in a sequence — the separation is the thing that must come after you attain the age. Someone who left the employer at 52 and takes a distribution at 56 has attained the age, but the separation did not follow it. That is a materially different fact pattern from the one the clause describes, and it is worth checking against your actual separation date rather than your current age.
| Where the money is when you take it | Is §72(t)(2)(A)(v) available? | Provision |
|---|---|---|
| Still in the employer’s qualified plan | Yes, if the separation followed attainment of age 55 | §72(t)(2)(A)(v) |
| Rolled to an individual retirement plan | No — disapplied outright | §72(t)(3)(A) |
The order of operations is the whole decision. The rollover is usually presented as the tidy, obviously-correct housekeeping step: get the money out of the old plan, consolidate it, simplify. If you are between 55 and 59½ and there is any chance you will need part of this money before 59½, that tidy step is expensive, and it is not undoable. Nothing in §72(t) restores an exception once the money is in an IRA.
Coordinate this with the rest of your retirement plan
A pension election is usually a one-time choice you cannot revisit, and an adviser can weigh it against your other income, your spouse’s position and how long the money has to last, though that does not replace the numbers in your own plan documents.
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What survives a rollover, and what does not
§72(t)(3)(A) disapplies two exceptions for individual retirement plans: (A)(v), the age-55 separation rule above, and (C), distributions to an alternate payee under a qualified domestic relations order. The other exceptions in §72(t)(2)(A) are not named in (3)(A). So the loss is specific rather than general — and it happens to fall on the exception most relevant to someone taking a pension buyout in their late fifties.
§72(t)(2)(A)(iv) — substantially equal periodic payments — is a separate route, and §72(t)(3)(B) requires that the series begin after separation from service when paid from a qualified plan. It carries its own modification penalty under §72(t)(4). We compare the two elsewhere: age 55 against a 72(t) series, and which plan the age-55 exception belongs to.
Note also what this page is not saying. It is not saying take the lump sum at 55. It is saying that if you do, where you put it decides whether an exception you already own still exists — and that the sequencing question has to be answered before the rollover paperwork, not after.
Sources
IRC §72(t)(1), §72(t)(2)(A)(v) and §72(t)(3)(A), quoted verbatim. Retrieved from the United States Code, July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A pension election turns on your own plan document, your own health and marital situation, and figures your plan must give you in writing — and this site states no interest rate, no conversion factor and no break-even age, because every one of those is specific to your plan and a borrowed number is worse than none.