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Separation From Service Rule 55: Explained for LCI Industries Employees

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Healthcare Provider Update: Healthcare Provider for LCI Industries LCI Industries offers its employees access to healthcare benefits through various insurance providers. Typically, companies like LCI partner with major health insurance carriers to provide a range of plans that may include medical, dental, and vision coverage. Specific details about the health insurance providers associated with LCI Industries are best retrieved directly from the company's benefits documentation or human resources department. Potential Healthcare Cost Increases in 2026 In 2026, healthcare costs are anticipated to rise significantly, driven by various factors, including the potential expiration of enhanced federal premium subsidies under the Affordable Care Act (ACA). Many states are facing proposed premium hikes, with some exceeding 60%, as insurers adjust rates to reflect escalating medical costs and inflationary pressures. The combined effect of the loss of subsidies and aggressive rate increases could see out-of-pocket premiums for consumers jump by over 75%, highlighting the urgent need for individuals to proactively assess their healthcare strategies for the upcoming year. Click here to learn more

It is essential for LCI Industries 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 LCI Industries 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 LCI Industries-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 LCI Industries 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 LCI Industries 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 LCI Industries 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 LCI Industries 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 LCI Industries-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 LCI Industries 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 LCI Industries 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 LCI Industries plan before withdrawing them and you can only withdraw from the LCI Industries 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 LCI Industries. 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 LCI Industries 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 LCI Industries 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 LCI Industries 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 LCI Industries 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 LCI Industries.

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.

What is the 401(k) plan offered by LCI Industries?

The 401(k) plan at LCI Industries is a retirement savings plan that allows employees to save a portion of their paycheck before taxes are taken out.

How can I enroll in the 401(k) plan at LCI Industries?

Employees can enroll in the LCI Industries 401(k) plan by completing the enrollment form available on the company’s HR portal.

Does LCI Industries match employee contributions to the 401(k) plan?

Yes, LCI Industries offers a matching contribution to the 401(k) plan, which helps employees maximize their retirement savings.

What is the maximum contribution limit for the LCI Industries 401(k) plan?

The maximum contribution limit for the LCI Industries 401(k) plan is set by the IRS and can change annually. Employees should refer to the latest IRS guidelines for the current limits.

When can I start contributing to the 401(k) plan at LCI Industries?

Employees at LCI Industries can start contributing to the 401(k) plan after completing their initial eligibility period, typically within the first few months of employment.

What investment options are available in the LCI Industries 401(k) plan?

The LCI Industries 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles tailored to meet different risk tolerances.

How often can I change my contribution amount to the LCI Industries 401(k) plan?

Employees can change their contribution amounts to the LCI Industries 401(k) plan on a quarterly basis or as specified in the plan guidelines.

Can I take a loan against my 401(k) at LCI Industries?

Yes, LCI Industries allows employees to take loans against their 401(k) balance, subject to certain conditions and limits outlined in the plan documents.

What happens to my 401(k) if I leave LCI Industries?

If you leave LCI Industries, you have several options for your 401(k), including rolling it over to another retirement account, cashing it out, or leaving it in the LCI Industries plan if permitted.

Is there a vesting schedule for the LCI Industries 401(k) matching contributions?

Yes, LCI Industries has a vesting schedule for matching contributions, which means that employees earn ownership of the matching funds over time based on their years of service.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
LCI Industries offers a comprehensive benefits package that includes both a 401(k) plan and a pension plan for its employees, covering the years 2022, 2023, and 2024. The company's 401(k) plan features a company match, which is designed to encourage employees to save for their retirement. This plan allows employees to enroll and includes options for spouse, domestic partner, and eligible children. The pension plan at LCI Industries, although not as widely detailed in public documents as the 401(k) plan, is still a crucial component of their retirement offerings. Employees typically qualify based on a combination of years of service and age, though specific qualifications and the pension formula details are not readily available in the public domain. The pension plan is designed to provide additional financial security to employees upon retirement, supplementing the 401(k) savings. In terms of company terminology, LCI uses standard industry acronyms and terms related to retirement planning, such as "401(k)", "match", and "pension". Specific documents reviewed do not provide further proprietary acronyms or unique terminology specific to LCI. For the detailed breakdown of eligibility criteria, years of service, and precise pension formulas, employees are encouraged to review internal HR documents or reach out directly to LCI’s benefits department. The relevant information can be found on LCI's official benefits webpage and through their financial reports​ (LCIBest)​ (LCI Investors).
In 2023-2024, LCI Industries faced significant financial and operational challenges, resulting in restructuring and cost-cutting initiatives. The company implemented layoffs due to declining demand in the recreational vehicle sector, one of its primary markets. LCI Industries aimed to reduce its overhead by focusing on core business areas, cutting expenses, and optimizing production efficiency. These moves were vital for LCI to navigate market volatility and stabilize its financial position​ (Business Wire)​ (Business Wire). Alongside the layoffs, LCI Industries made changes to employee benefits, including adjusting pension plans and modifying the 401(k) offerings. These benefit changes were part of broader efforts to realign employee costs with the company's reduced revenue expectations. The restructuring of benefits is an essential measure to ensure that LCI Industries remains competitive in a challenging economic environment, while still providing long-term retirement options for its employees. Addressing these developments is crucial due to the ongoing economic uncertainty, rising inflation, and evolving tax policies, which all influence corporate strategies​ (Business Wire)​ (Business Wire).
LCI Industries (LCII) offers stock options and Restricted Stock Units (RSUs) to its employees, primarily as part of their executive compensation package. These equity incentives are designed to align the interests of the company's leadership with those of its shareholders by providing executives with a stake in the company's future success. In 2022, 2023, and 2024, LCI Industries continued to grant both stock options and RSUs to eligible employees, mainly targeting senior management and key executives. The stock options typically vest over a period of time, and the exercise price is generally set at the fair market value of the stock on the date of grant. RSUs, on the other hand, are generally time-based awards that vest upon the completion of specified service periods. The availability of these stock options and RSUs is contingent on the employee’s role within the company. Higher-level executives and those in strategic positions are more likely to receive such awards. For example, the company’s executive team, including positions such as the Chief Financial Officer and Group Presidents, are key recipients. For specific details regarding the stock options and RSUs, such as the exact number of options granted or the specific vesting schedules, you would need to refer to the company’s filings with the SEC. For instance, detailed information about these equity awards can typically be found in the company's annual proxy statements or 10-K filings, where you can locate the data, including page numbers, on these equity compensation plans. Sources for the above information include LCI Industries' official investor relations page, MarketBeat, and PitchBook​ (LCI Investors)​ (PitchBook)​ (MarketBeat).
LCI Industries offers a comprehensive healthcare benefits package designed to support both employees and their families. As part of their benefits, LCI provides health insurance through well-known national providers, covering a significant portion of premiums. Employees can enroll in health, dental, vision, and supplemental insurance plans that extend to spouses, domestic partners, and dependents. Additionally, LCI's Employee Assistance Program (EAP) offers professional and confidential services to assist with work-life challenges. The company also supports financial wellness with flexible spending accounts (FSA) and a 401(k) plan with matching contributions. LCI Industries is committed to maintaining competitive health benefits, a critical aspect as healthcare costs continue to rise in the U.S., affecting employees' financial stability​ (LCIBest)​ (Mercer | Welcome to brighter). The increasing cost of healthcare, projected to rise by 5.4% in 2024, emphasizes the importance of LCI Industries' benefits package in today's economic environment. With healthcare inflation driven by the increased utilization of specialty drugs and a surge in chronic conditions, LCI is strategically managing costs while ensuring comprehensive coverage for its workforce. Employers like LCI must balance rising costs with affordability for employees, especially given the current political and economic climate where healthcare is a growing concern for both employers and employees​ (Mercer | Welcome to brighter)​ (Risk & Insurance).
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For more information you can reach the plan administrator for LCI Industries at , ; or by calling them at .

https://www.businesswire.com/news/home/20240213522707/en/LCI-Industries-Reports-Fourth-Quarter-and-Full-Year-Financial-Results https://www.ai-cio.com/news/ppg-agrees-to-transfer-pensions-of-4000-retirees/ https://www.independentactuaries.com/2024-plan-limits/ https://www.emparion.com/2024-cash-balance-plan-contribution-maximum/ https://www.cashbalancedesign.com/resources/contribution-limits/ https://www.daypitney.com/insights/publications/2023/11/3-irs-publishes-2024-pension-plan-limitations/ https://www.cashbalancedesign.com/ https://www.lcibest.com/careers/employee-benefits/ https://investors.lci1.com/news/news-details/2024/LCI-Industries-Reports-Fourth-Quarter-and-Full-Year-Financial-Results/default.aspx https://pitchbook.com/profiles/company/41951-98 https://www.marketbeat.com/stocks/NYSE/LCII/options/#google_vignette https://www.mercer.com/en-us/insights/us-health-news/health-benefit-cost-expected-to-rise-54-in-2024-mercer-survey/ https://riskandinsurance.com/u-s-employer-health-care-costs-projected-to-rise-9-in-2025/ https://www.wealthenhancement.com/s/tools-calculators https://www.kiplinger.com/taxes/tax-planning/604591/net-unrealized-appreciation-a-hidden-tax-strategy https://www.fidelity.com/learning-center/personal-finance/retirement/company-stock https://www.stordahlcap.com/insights/understanding-net-unrealized-appreciation-nua-and-its-tax-benefits https://www.businesswire.com/news/home/20230808453389/en/ https://www.principal.com/ https://www.gurufocus.com/news/2432893/lci-industries-inc-lcii-q1-2024-earnings-call-transcript-highlights-strong-performance-and-strategic-diversification

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