How to Unlock a Pension Under 50

Qualified employer pensions generally prohibit you from tapping your account balance until you reach age 59 1/2. You can get your money earlier if you leave your job. However,the Internal Revenue Service might slap you with a 10 percent early-withdrawal penalty, unless you qualify for an exception.

Distributions from Qualified Plans

When you siphon money from a qualified employer plan, you must pay income tax on the portion stemming from deductible contributions. You can avoid the tax if you roll the money into an individual retirement account or another pension plan. Qualified plans let you to squirrel away pre-tax contributions and may allow your employer to kick in some money as well. Employer plans keep your money locked up except for certain exceptions. These include reaching age 59 1/2, becoming disabled, having high medical expenses, or if you need to pay back-taxes to the IRS. The IRS doesn’t penalize these distributions. You can also unlock your pension by leaving the job, but if you’re younger than 55, you'll receive the 10 percent penalty.

Substantially Equal Periodic Payments

One way to sidestep the early withdrawal penalty is to set up substantially equal periodic payments after you leave the job. There are three ways to figure the annual payments, but all hinge on a 10-year period or your life expectancy. If you take the lifetime payout option before age 50, your annual payments will be smaller than if you had waited.

Limited Loans

Certain employer plans, such as 403(b)s and 457s, will loan you some of your pension money tax-free, but there's a catch. You have to use the money to buy or build your main home, or pay the loan back within five years. There's a catch there too since the payback must be done in equal installments no more than three months apart. The most you can borrow is $50,000, and whatever you take out can't be more than half of your account balance minus your deductible contributions. There's no deal if the loan request takes your account below $20,000.

SEP and SIMPLE Plans

If your employer pitches in to your Simple Employee Pension (SEP), you can roll that cash into your own IRA whenever you wish. You can then withdraw your money penalty-free if you qualify for an exception. A SIMPLE IRA plan allows employees to contribute and employers to make matching contributions. You can roll that into your own IRA tax-free if you've had the plan for at least two years.

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