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How to Cash in Pensions Under 50

Updated November 22, 2016

Some people under the age of 50 find themselves in financial situations that necessitate the early withdrawal of pension funds. The Internal Revenue Service requires people to keep pension funds invested in tax-deferred accounts until age 59 1/2. In most instances, the IRS assesses a 10 per cent penalty tax if people withdraw funds early. Generally, employers do not allow employees to access pension funds prematurely while still employed. If you leave a company, you can access the funds, although you must still contend with the IRS penalty.

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  1. Find your most recent pension statement. Most pension custodians send out quarterly statements. The balances reflected on the last statement were accurate on the day the statement went out, but do not necessarily reflect the current value. Most pension funds invest in mutual funds which have fluctuating values. Look for the customer service number of the pensions custodian. Most companies list a contact number near the top of the first statement page.

  2. Call the pension custodian. Ask the representative how much of your pension plan has been vested. Funds that are vested belong to the employee. Many pension plans are not vested until three years after the employees hire-date. Instruct the representative to cash-in your vested balance and mail you a cashiers check for the proceeds. Since you are aged 50, the representative must withhold 20 per cent of the disbursement amount to cover federal taxes. Instruct the representative to withhold an additional 10 per cent to cover the IRS premature withdrawal penalty. Confirm the amount of the disbursement.

  3. Check your mail for the disbursement check. It normally takes between seven and 10 business days to receive the disbursement. Some companies send the check by overnight express delivery for an additional surcharge. When you receive the check, make sure the disbursed amount listed on the disbursement notice equals the amount of the check. If the pension contained mutual funds, the disbursed amount may differ from the amount quoted to you when you spoke to the representative because stock prices may have changed between your conversation and the processing of the transaction.

  4. Tip

    If your former employer requires you to withdraw funds from an old pension plan, you can avoid exposing the funds to tax by rolling the proceeds into a Traditional Individual Retirement Account. Traditional IRAs enjoy the same tax treatment as pensions plans. The IRS waives the 10 per cent tax penalty in some instances, such as when the pension owner dies or for people who are military reservists. Consult a tax professional to see if you qualify to make qualified withdrawals before making your disbursement request.


    In addition to the mandatory 10 per cent tax penalty, you must pay ordinary income tax on pensions disbursements that occur prior to age 59 1/2.

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About the Author

Ciaran John
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