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Rule of 55 query
Old 09-22-2015, 02:11 PM   #1
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Rule of 55 query

Unfortunately I have be released by mega corp after a re-org last month, happily though, I have joined yet another mega corp. I'm familiar w/the rule of 55 with 401k's and that it applies to the last corp you were with upon retirement. My query is this; I have a sizable 401k with the company I'm now leaving (regular pre-tax 401k) and am allowed to leave it with Vanguard in the current 401k status. The corp I'm going to offers both regular 401k and Roth version. I'm 55.5 y.o. and plan to exit at 58 if all goes well. Would the rule of 55 still apply to my old 401k traditional plan even if I sign up for the new ROTH 401k under new mega corp seeing as there are differing IRS rules/regs on these?

Any bits of wisdom appreciated.....
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Old 09-22-2015, 02:38 PM   #2
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I'm not entirely sure - but I think, if you're old 401k had the rule of 55 (not all do) - that you could start to make withdrawals at any time, since you were over 55 when you separated. I would imagine you would get better info from the plan administrator or the plan documents.

Again - plans differ and not all offer the withdrawals without penalty at age 55.
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Old 09-22-2015, 04:09 PM   #3
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talk to the plan administrator (in writing, preferably) - however, I really don't think they (i.e. the plan) will care if you terminate after 55 and get another job (outside of the controlled group) and start drawing on your k money

you get a job inside the controlled group and it's probably a different story
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Old 09-22-2015, 04:13 PM   #4
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please do not construe this as legal advice
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Old 09-22-2015, 04:18 PM   #5
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+1 check with your former employer's plan administrator to verify but my understanding is that as long as you terminated service in the year your turned 55 or later that withdrawals would be penalty free.

However, if you retire at 58 then you would only have 1 1/2 years before you would be 59 1/2 at which point the issue is moot.

Is there a match with the new employer and if so, what is the vesting period. IIRC at my old firm you needed to have in 5 years to be 100% vested in the firm match.
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Old 09-22-2015, 04:20 PM   #6
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The age 59 distribution rule says any 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without having to pay a 10 percent early withdrawal penalty.

There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without penalty from their 401k (the "rule of 55"). There are three key points early retirees need to know.

First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575.

Second, if you still have money in the plan of a former employer and assuming you weren't at least age 55 when you left that employer, you'll have to wait until age 59 to start taking withdrawals without penalty. Better yet, get any old 401k's rolled into your current 401k before you retire from your current job so that you will have access to these funds penalty free.

Third, this exception only applies to funds withdrawn from a 401k. IRAs operate until different rules, so if you retire and roll money into an IRA from your 401k before age 59, you will lose this exception on those dollars.
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Old 09-22-2015, 04:24 PM   #7
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Originally Posted by pb4uski View Post
Is there a match with the new employer and if so, what is the vesting period. IIRC at my old firm you needed to have in 5 years to be 100% vested in the firm match.
PPA changed the rules to either 3 year cliff or 6 year graded vesting for DC plans
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Old 09-22-2015, 04:29 PM   #8
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This is a good article on the rule of 55
The Age 55 Rule for 401(k) Accounts
Quote:
Third, you don’t have to be retired to qualify for this exception to the 10% penalty. For example, if at age 56 you leave Employer A and take a job with Employer B, your 401(k) account from Employer A is now accessible penalty-free — even though you’re not retired.
Because there's no restriction on reemployment I don't see why opening a new account would cause a problem:
Quote:
Fourth, it doesn’t have to be your most recent employer. For example, if, at age 56, you leave Employer A and take a job with Employer B, then you retire from Employer B at age 58, your 401(k) accounts from both Employer A and Employer B are now accessible penalty-free (because in each case, you separated from service in or after the calendar year in which you reached age 55).
Basically telling us you can open another 401 without causing problems.
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Old 09-22-2015, 07:48 PM   #9
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There is such a push to initiate a rollover of funds from a former employers 401k. This is another scenario where it makes more sense to leave the funds in place.
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Old 09-22-2015, 10:03 PM   #10
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Or check the new plan. If it provides for withdrawals after leaving at age 55+ and allows rollovers of the old 401k into the new one I would think that would work also.
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Old 09-23-2015, 10:44 AM   #11
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As usual some very sound & sage advice and would seem my query is answered. I was under the impression the rule stated that access to 401k after 55 had to be from the last employer of record with a 401k balance. I thought i could skirt this by signing up a ROTH w/new employer since it's essentially different from a tax perspective. Thanks all
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