If an investor aged 52 transfers funds from a 401(k) plan to an IRA, what is the outcome regarding penalties?

When an investor aged 52 transfers funds from a 401(k) plan to an IRA through a direct rollover, there are no penalties applied to the amount transferred. The IRS allows individuals to roll over retirement accounts without incurring penalties as long as the transfer is executed correctly. A direct rollover means that the funds are transferred directly from the 401(k) to the IRA without passing through the individual's hands, thus avoiding any immediate tax implications or penalties.

In this scenario, the individual is under the age of 59½, which typically exposes early withdrawals to a 10% penalty if taken directly from a retirement account. However, because the funds are not being withdrawn but rather rolled over into another retirement account, this penalty does not apply. Additionally, the amount rolled over is not considered taxable income at the time of the transfer.

Understanding these rules is crucial for managing retirement assets effectively and avoiding unnecessary tax liabilities. Thus, for this specific transfer, there will be no penalty incurred.