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Separation From Service Rule 55: Explained for Berkshire hathaway Employees

Healthcare Provider Update: Healthcare Provider for Berkshire Hathaway: UnitedHealth Group Blog Post Paragraph on Potential Healthcare Cost Increases in 2026: As we look toward 2026, Berkshire Hathaway employees and many others in the United States may face significant challenges with healthcare costs. Current projections indicate that average premiums for Affordable Care Act (ACA) marketplace plans could rise sharply, with some states experiencing increases of over 60%. This surge is largely attributed to the possible expiration of enhanced federal subsidies, alongside escalating medical costs driven by factors such as expensive medications and hospital services. Experts warn that without renewed subsidies, millions of consumers could see their premiums more than double, putting healthcare access at risk for a substantial portion of the population. Consequently, proactive steps to manage these anticipated rises, such as optimizing health plan selections and maximizing health savings accounts, will be essential for both employees and employers alike. Click here to learn more

It is essential for Berkshire hathaway employees who are thinking about early retirement to find out more about the specifics of the Separation from Service exception in order to make the best financial decision. As Tyson Mavar from The Retirement Group, a division of Wealth Enhancement Group, recommends, workers should take these rules into consideration and meet with a qualified advisor to ensure that their finances are well positioned,” suggests Patrick Ray, Financial Advisor.

“Understanding the basics of early retirement options like the Separation from Service exception is crucial for Berkshire hathaway employees. Patrick Ray from The Retirement Group, a division of Wealth Enhancement Group, explains the significance of consulting with a qualified professional in order to ensure that these financial strategies are implemented correctly in order to achieve the best results,” says Michael Corgiat, Retirement Specialist.

In this article, we will discuss:

1. The specifics of the Separation from Service rule, also known as the Rule of 55, which allows employees to take penalty-free withdrawals from their 401(k) plans starting at age 55 under certain conditions.
2. The key differences between the Separation from Service rule and the standard age 59½ rule, including the restrictions and limitations of each.
3. Practical considerations and examples that illustrate how the Separation from Service exception can be used to plan for early retirement or to meet certain financial needs if one loses a job.
The separation of service rule 55 is not fully discussed in the qualified retirement planning. Most people are probably aware of the age 59½ provision that permits a person to receive distributions from a retirement plan or an IRA account without incurring a 10 percent early withdrawal penalty.

The separation of service rule states that if an employee, who is participating in a company retirement plan such as a 401(k) plan, leaves the employer during the year in which they turn age 55 or older, distributions from the retirement plan are not subject to the additional 10 percent tax penalty.

The Separation from Service exception can help workers who have a Berkshire hathaway-sponsored retirement account, such as a 401(k), and want to retire early or need to withdraw funds if they have lost their job towards the end of their career. It can be a lifeline for Berkshire hathaway workers who require cash flow and have no other good alternatives.

Here’s how the Separation from Service exception works and whether you should consider using it.

What is the Separation from Service exception (55 Rule)?

The Separation from Service exception sometimes called “Rule of 55” or “55 Rule” is an IRS provision that allows workers who leave their job for any reason to start taking penalty-free distributions from their current employer’s retirement plan once they’ve reached age 55. It offers Berkshire hathaway employees, who are interested in retiring earlier than the usual age or who need the funds, a way to take distributions from their retirement plans before the age of 59½.

Taking a distribution from a tax-qualified retirement plan, such as a 401(k), before the age of 59½ is generally subject to a 10 percent early withdrawal tax penalty. However, the IRS Separation from Service exception may permit you to receive a distribution after reaching age 55 (and before age 59½) without triggering the early penalty if your Berkshire hathaway sponsored plan permits such distributions.

However, any distribution would still be subject to an income tax withholding rate of 20 percent. If it turns out that 20 percent is more than you owe based on your total taxable income, you’ll get a refund after filing your yearly tax return.

For example: In one Tax Court case, a taxpayer, whom we will call Nancy, left her job when she was 53 years old. Under the terms of her company plan, Nancy was eligible to take a distribution upon separation from service. The plan also allowed distributions to terminated employees, age 55 and above. Nancy declined to take the distribution when she left her job but elected to begin distributions once she turned 55. Undoubtedly, Nancy was under the mistaken impression that once she turned age 55, she was exempt from the 10% early withdrawal penalty.

The IRS disagreed and imposed the penalty since she was not age 55 when she was terminated from service. The Tax Court sided with the IRS and ruled that what matters is the age of the taxpayer when they separated from service, not when they took the distribution. Therefore, the 10% penalty was upheld.

The main difference between the separation of service exception and the age 59½ rule is that the separation of service exception only applies to qualified retirement plans and not IRA accounts.

In another court case, a taxpayer, Robert, left his job at age 55 and rolled over his balance from a qualified plan to his IRA. Robert then began taking distributions from the IRA. At trial, the Court sided with the IRS and held that the subsequent distribution did not fall under the Separation from service exception and was subject to the early withdrawal penalty. Therefore, if you leave a job after turning age 55 and need all, or a portion, of your retirement funds immediately, you should be careful about rolling over funds into an IRA. Once you roll over qualified plan assets into an IRA, the Rule of 55 exception is lost. Any subsequent distributions from the IRA before age 59½ will be subject to the 10% early withdrawal penalty unless another exception applies.

How to use the rule of 55 to retire early

Many companies have retirement plans that enable employees to take advantage of the Separation from Service exception, but Berkshire hathaway may not offer the option.

401(k) and 403(b) plans are not required to provide for Separation from Service exception withdrawals, so you shouldn’t be surprised if your Berkshire hathaway-sponsored plan doesn’t allow for this exception. Many companies see the rule as an incentive for employees to resign in order to get a penalty-free distribution, with the unintended consequence of prematurely depleting their retirement savings.

Here are the conditions that must be met and other things to consider before taking a Separation from Service exception withdrawal.

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Retirement plan offers. If the Berkshire hathaway plan offers a 401(k) or 403(a) or (b), the Separation from Service exception withdrawals are allowed. Some plans prohibit withdrawals prior to age 59½ or even 62.

Age 55 or older. You leave your position (voluntarily or involuntarily) at Berkshire hathaway in or after the year you turn 55 years old.

Money must remain in the plan. You fully understand that your funds must be kept in the Berkshire hathaway plan before withdrawing them and you can only withdraw from the Berkshire hathaway plan. If you roll them over to an IRA, you lose the rule of 55 tax protection.

Potential lost gains. You understand that taking early withdrawals means you will be giving up any gains you might have been able to make on your investments.

Reduce taxes. You can wait until the start of the next calendar year to begin rule of 55 withdrawals when your taxable income should be lower if you are not working.

Public safety worker. If you are a qualified public safety worker (police officer, firefighter, EMT, correctional officer or air traffic controller), you might be able to start five years early. Ensure that you have a qualified plan that allows withdrawals in or after the year you turn 50 years old.

However, as with any financial decision, be sure to check with a trusted advisor or tax professional first to avoid any unforeseen consequences.

Should you use the Separation from Service exception?

Whether or not to take early withdrawals under the Separation from Service exception will depend on your financial situation. You’ll want to know your plan’s rules, how much you’d need to withdraw, and what your annual expenses are likely to be in the early years of your early retirement after leaving Berkshire hathaway. Solving those issues should help you know if taking an early withdrawal is the right decision for you.

Here are some situations where it’s likely that taking early withdrawals would not be the right move.

If it would push you to a higher tax bracket. The amount of your income for the year in which you begin the withdrawal plus the early withdrawal might put you into a higher marginal tax bracket.

If you’re required to take a lump sum. The Berkshire hathaway plan may require a one time lump sum withdrawal and this may force you to take more money than you want and be subject to ordinary income tax liability. These funds will no longer be available as a source of tax advantaged retirement income.

If you’re younger than 55 years old. You might want to leave Berkshire hathaway before you turn 55 and start taking withdrawals at age 55. Note this is NOT allowed and you will be assessed the 10 percent early withdrawal penalty.

Other important considerations

If you’re thinking of taking a Separation from Service exception withdrawal, you’ll also want to consider a few other things:

If you have funds in multiple former employer plans, the rule only applies to the plan of your current/most recent employer. If you have funds in multiple plans that you want to access using the Separation from Service exception, be sure to roll over those funds into your Berkshire hathaway plan (if it accepts rollovers) BEFORE you leave the company.

Funds from IRA plans that you might want to access early can also be rolled into your current plan (while still employed) and accessed that way.

If you so choose, you can continue to make withdrawals from your former employer’s plan even if you get another job before turning age 59½.

Be sure to time your withdrawals carefully to create a strategy that makes sense for your financial situation. Withdrawing from a taxable retirement account during a low-income year could save you in taxes, particularly if you believe your tax rate may be higher in the future.

Bear in mind that the only real advantage of the Separation from Service exception is avoiding the 10 percent penalty. Meanwhile, the tax deferral is sacrificed, which may turn out to be more valuable if other financial resources that are not tax-qualified can cover expenses for the coming years and you are able to save the 401(k)/403(b) distribution until later years.

Other Exceptions

You may be able to access the funds in your retirement plan with Berkshire hathaway without a tax penalty in a few other ways, depending on your circumstances.

There is an exception called the 72(t) option which allows withdrawals from your 401(k) or IRA at any age without any penalty. This option is called SEPP (Substantially Equal Periodic Payments), and these payments are not subject to the 10 percent early withdrawal penalty. Once these distributions begin, they must continue for a period of five years or until you reach age 59½, whichever comes later. 72(t) payments have suddenly become a better deal for IRA owners and company plan participants.

Also known as “substantially equal periodic payments,” 72(t) payments are advantageous because they are exempt from the 10% early distribution penalty that usually applies to withdrawals before age 59½. You can take them from an IRA at any time, but only from a workplace plan after leaving Berkshire hathaway.

There are several downsides to 72(t) payments.

First, they must remain in place for at least 5 years or until age 59½, whichever comes later. This means a 45-year old IRA owner must maintain her payments for almost 15 years.

Second, if the payments are modified before the end of the 5-year/age 59½ duration, you are subject to a 10% penalty (plus interest) on all payments made before 59½. Modification will normally occur if you change the payment schedule (e.g., stop payments), change the balance of the account from which payments are being made (e.g., a rollover to the account), or change the method used to calculate the payment schedule (except for a one-time switch to the RMD method – see below).

There are three(3) acceptable ways to calculate 72(t) payments:

The required minimum distribution (RMD) method. Payments are calculated like lifetime RMDs. Therefore, they fluctuate each year. The RMD method normally produces the smallest payout among the three methods. Once you use the RMD method, you can’t switch out of it.

The fixed amortization method. Payments are calculated like fixed mortgage payments. After using this method for at least one year, you can switch to the RMD method without penalty.

The fixed annuitization method. Payments are calculated by dividing the account balance by an annuity factor. Like the amortization method, they remain fixed, and you can switch to the RMD method after the first year.

However, on January 18, the IRS released Notice 2022-6, which said that 72(t) payment schedules starting in 2022 or later can use an interest rate as high as 5%. (And, if 120% of the Federal mid-term rate rises above 5%, you can use a rate as high as the 120% rate.) This is still the updated rate in 2024. This is great news because the higher the interest rate, the higher the payments will be. This change allows you to squeeze higher payments out of the same IRA balance. (Note that you can’t change interest rates for a series of 72(t) payments already in place.)

Other circumstances that exempt you from the early withdrawal penalty include:

1. Total and permanent disability

2. Distributions made due to qualified disasters

3. Certain distributions to qualified reservists on active duty

4. Medical expenses exceeding 10 percent of adjusted gross income

5. Withdrawals made to satisfy IRS obligations

But the IRS offers other exceptions to the early withdrawal penalty.

Bottom line

If you can wait until you turn 59½, withdrawals after that age are not typically subject to the 10 percent IRS tax penalty. However, if you are in a financially safe position to retire early, the Separation from Service exception may be an appropriate course of action for you.

Sources:

1. Brenner, Sarah. '5 Things You Must Know about the Age-55 Rule.' Ed Slott and Company, LLC , 23 June 2021, irahelp.com.

2. 'Understanding the Age 55 Exception to the 10% Early Withdrawal Penalty.' The Money Know How , themoneyknowhow.com.

3. 'Retiring Early? 5 Key Points about the Rule of 55.' Charles Schwab , 12 March 2024, schwab.com.

4. 'Retirement Plan: Separation from Service Rule & Tax Penalty.' Cherry Bekaert , cbh.com.

5. Liang, Eddie. 'Retirement Planning Between Ages 55 & 59.5: The Rule of 55.' Downshift Financial , 21 September 2021, downshiftfinancial.com.

How does the merger of the Johns Manville Employees Retirement Plan into the Berkshire Hathaway Consolidated Pension Plan specifically affect the retirement benefits for current employees at Johns Manville? In what ways can eligible employees of Johns Manville leverage the benefits of this merger to maximize their retirement planning?

Impact of Merger on Current Employees' Retirement Benefits: The merger of the Johns Manville Employees Retirement Plan into the Berkshire Hathaway Consolidated Pension Plan does not decrease the pension benefits previously earned by employees under their prior plans. Employees continue to receive the same benefits with the same payment options as provided by their prior plan. Any previous payment elections, beneficiary designations, and qualified domestic relations orders remain effective. This consolidation also maintains the insurance of pension benefits through the federal Pension Benefit Guaranty Corporation.

What are the implications for employees of Johns Manville if they choose to retire early prior to their Normal Retirement Age? How do the specific conditions set forth in the Berkshire Hathaway Consolidated Pension Plan guide early retirees from Johns Manville in making informed decisions regarding their benefit options?

Implications of Early Retirement: Employees of Johns Manville who choose to retire early, before their Normal Retirement Age, can still receive benefits. However, these benefits are adjusted based on the age of retirement. If an employee retires at 60, for instance, their monthly benefit payment from the plan will be reduced by a certain percentage for each month that the benefit payments start before the Normal Retirement Age. This reduction compensates for the longer period over which benefits are expected to be paid.

Given the unique characteristics of the Merged Plan, what should employees at Johns Manville consider when calculating their Average Final Salary, and how does this calculation impact their retirement benefits? Additionally, how is Covered Compensation factored into this adjustment, and what strategies can employees employ to ensure accurate calculations?

Calculation of Average Final Salary and Covered Compensation: When calculating the Average Final Salary for retirement benefits, it includes the highest-paid, five consecutive years out of the last ten years of employment. This calculation impacts the retirement benefits as it forms part of the formula used to determine the pension amount. Additionally, Covered Compensation, which refers to the average of the Social Security wage bases, is used to adjust portions of the salary in the benefits calculation, ensuring that the benefits align with national wage growth trends.

How can employees of Johns Manville navigate the various options available for retirement benefit payments outlined in the Berkshire Hathaway Consolidated Pension Plan? What key points should Johns Manville employees consider regarding the selection of forms of payment and potential tax implications in retirement?

Navigating Retirement Benefit Payment Options: Employees of Johns Manville need to consider the form of payment for their retirement benefits, as different options can have different tax implications and affect monthly income. Options typically include lump sums, annuities, or a combination. Employees should consider their financial needs, tax situation, and life expectancy when choosing the form of payment. Consulting with a financial advisor could be beneficial.

For employees at Johns Manville, what steps should they take to stay informed about their accumulated service and benefit service credits, particularly in relation to the changes brought about by the merger into the Berkshire Hathaway Consolidated Pension Plan? How do vested rights impact their eligibility for retirement benefits?

Staying Informed About Service Credits: To manage the transition and keep track of their service credits post-merger, Johns Manville employees should regularly review their service and benefit statements, maintain communication with the plan administrator, and attend any informational meetings or seminars offered by Berkshire Hathaway. Understanding how service credits are calculated and tracked ensures that employees can accurately plan for retirement.

What is the process for reemployment under the Terms of the Merged Plan for former employees of Johns Manville, and how can they ensure their accumulated benefit service is credited effectively upon rehire? What are the implications of this reemployment on their retirement benefits, particularly concerning their previous employment history?

Reemployment and Accumulated Benefits: Reemployed former employees of Johns Manville should verify how their accumulated benefits are treated upon their rehire. Generally, benefits accumulated during previous periods of employment will be credited upon rehire, but specific plan provisions should be consulted to confirm how reemployment affects accrued benefits and eligibility for additional benefits.

What do the terms of the Berkshire Hathaway Consolidated Pension Plan dictate regarding disability retirement benefits for eligible employees at Johns Manville? How should employees approach the application process for disability benefits, and what criteria do they need to be aware of to qualify?

Disability Retirement Benefits: Eligible employees of Johns Manville who become disabled according to the terms of the plan may qualify for disability retirement benefits. The process involves a determination by the plan administrator, and employees must meet specific criteria outlined in the plan documents to qualify. Understanding these criteria and the required documentation is crucial for accessing disability benefits.

How can employees of Johns Manville ensure they have adequate protection for their beneficiaries under the retirement provisions outlined in the Berkshire Hathaway Consolidated Pension Plan? What specific steps can employees take to secure these benefits, and how can they keep their beneficiary designations updated?

Beneficiary Protections: Employees should regularly review and update their beneficiary designations to ensure that their retirement benefits are distributed according to their wishes upon their death. This includes making any necessary changes following life events such as marriage, divorce, or the birth of a child.

How does participation in the Merged Plan differ for salaried and hourly employees of Johns Manville, and what specific eligibility criteria apply to each group? How can understanding these differences improve retirement planning for employees across the different classifications?

Differences in Participation for Salaried and Hourly Employees: The eligibility and benefits might differ between salaried and hourly employees under the Merged Plan. Understanding these differences helps employees make informed decisions about their retirement planning and benefit utilization.

How can employees of Johns Manville contact the Local Benefits Administrator for assistance regarding their retirement benefits and the contents of their plan documents? What are the recommended methods of communication for inquiries or requests regarding their Merged Plan benefits?

Contacting Local Benefits Administrator: Employees should contact their Local Benefits Administrator for any inquiries or assistance regarding their retirement plan. Keeping the contact information updated and consulting the administrator for guidance on plan provisions and benefit claims is advised for navigating their retirement benefits effectively.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Berkshire Hathaway offers both a traditional defined benefit pension plan and a defined contribution 401(k) plan. The defined benefit plan provides retirement income based on years of service and final average pay. The 401(k) plan features company matching contributions and various investment options, including target-date funds and mutual funds. Berkshire Hathaway provides financial planning resources and tools to help employees manage their retirement savings.

Berkshire Hathaway has agreed to a $10 million settlement in a long-running pension dispute involving Acme Brick. The company continues to offer comprehensive retirement benefits, including a defined benefit pension plan and a 401(k) plan. In today's political climate, it is important to stay informed about these benefits.

Berkshire Hathaway does not typically offer RSUs or stock options as part of its employee compensation packages, focusing on other forms of financial incentives and benefits.