The rule of 55?

[tmm99]

Have you ever heard of the "rule of 55"? That you can withdraw money out of 401K if you are over 55 and no longer working (quit and retired or laid off and retired)?

Any gotcha's?

 

[38Chevy454]

I think you are referring to the rule of 72t, which enables you to take equal payments from your pre-tax accounts. Search for 72t and you will find more info. Or some other replies may provide better details than I can, I am not an expert on it.

 

[rbmrtn]

It's been mentioned in several threads recently. One catch is that IRS allows it but all 401k plans don't. IRS pub 575 is the source.

https://www.expertplan.com/articles/a022001.jsp

 

[MRG]

Have you ever heard of the "rule of 55"? That you can withdraw money out of 401K if you are over 55 and no longer working (quit and retired or laid off and retired)?

Any gotcha's?

Yes your SPD(Summary Plan Description) must allow for withdrawls at age 55, not all do. Some allow for withdrawls but limit the number. Get a copy from your HR or benefits department.

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[steelyman]

I think rbmrtn references the right thing: you can take withdrawals penalty-free from a 401(k) type plan if you leave employment in the year you turn 55, but the employer has to allow it.

 

[MissMolly]

Yes, there are rules regarding being able to withdraw from your 401K when you are 55. The exception to the 10% tax rule includes: when distributions are made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.

401(k) Resource Guide - Plan Sponsors - General Distribution Rules

 

[GrayHare]

Such withdrawals are not allowed from a 401k originating with an employer for which you stopped working before age 55.

 

[LOL!]

It's such a well-known feature of many 401(k) plans that pretty much the entire early-retired kingdom knows about it. The OP must live in another kingdom.

 

[steelyman]

It's such a well-known feature of many 401(k) plans that pretty much the entire early-retired kingdom knows about it. The OP must live in another kingdom.

Well, it is kind of confusing...

I've learned a lot here - that's why a person asks!

 

[Rustward]

Well, it is kind of confusing...

I've learned a lot here - that's why a person asks!

Ya know, Steely, some people were born knowing everything. The rest of us have to ask.

 

[steelyman]

Ya know, Steely, some people were born knowing everything. The rest of us have to ask.

That's funny! May I call you Rusty? (you can call me that too - I'm retired!). You can call me Steely (or you can call me Al).

 

[Calico]

Ya know, Steely, some people were born knowing everything. The rest of us have to ask.

+1. You beat me to it.

I feel sorry for people who must carry the burden of perfection on their shoulders, while we mere mortals scrape by as best we can.......

 

[Big_Hitter]

you generally have to "retire" at 55

 

[heeyy_joe]

Beware the penalty box.

 

[Rustward]

you generally have to "retire" at 55

I'm not sure one has to "retire". I believe the requirement is that you terminate employment from the employer where you have the 401K in the year you turn 55 or later, but that does not keep you from starting with another employer.

Of course, as has been stated by others, the 401K plan must allow this "55" thing.

 

[tmm99]

It's such a well-known feature of many 401(k) plans that pretty much the entire early-retired kingdom knows about it. The OP must live in another kingdom.

OUCH!!!

Some of the unfortunate have to wo*k and don't have time to read a lot of posts....

 

[donheff]

LOL didn't take his nap today

 

[BBQ-Nut]

I'm not sure one has to "retire". I believe the requirement is that you terminate employment from the employer where you have the 401K in the year you turn 55 or later, but that does not keep you from starting with another employer.

Of course, as has been stated by others, the 401K plan must allow this "55" thing.

And - one must be persistent in confirming this.

When I asked a representative for my 401k plan, at first they said it was not allowed because it was not allowed by 'law'.

When I persisted and showed the excerpt from the irs publication 575, I then got an apology and a confirmation that yes, my plan does allow this.

 

[nuke_diver]

you generally have to "retire" at 55

Please tell my wife

I think rbmrtn references the right thing: you can take withdrawals penalty-free from a 401(k) type plan if you leave employment in the year you turn 55, but the employer has to allow it.

I know I could do the research but I'm lazy today...If I have a 401K and roll it to an IRA does the rule still apply? Not that I will necessarily use it when I am less than 591/2 but I like to know all my options

 

[BBQ-Nut]

Please tell my wife



I know I could do the research but I'm lazy today...If I have a 401K and roll it to an IRA does the rule still apply? Not that I will necessarily use it when I am less than 591/2 but I like to know all my options

No. If you roll it to an IRA, you now have to wait until 59 1/2, unless you can live with the 10% withdrawal penalty.

That it is why, sometimes it is 'better' to leave your 401k where it is.

 

[prototype]

No. If you roll it to an IRA, you now have to wait until 59 1/2, unless you can live with the 10% withdrawal penalty.

That it is why, sometimes it is 'better' to leave your 401k where it is.

I moved most of my 401K into a tIRA after retirement from a megacorp at 55 and before 59-1/2 with no penalty or taxes. I also made a small withdrawal with no 10% penalty at 56 (age 57 for tax year - it was my last year I could file as single head of household so I had some "room in the 15%tax bracket").

It was clear in my SDP that that this is the way my 401K worked (I also got verbal verification before I retired). I thought all 401Ks worked this way since they need to adhere to the same Govt. regulations, but I could be wrong.

I guess the only thing in the OPs post I'm not sure about is the case of quitting. But why quit at 55 if you can you can retire or get a layoff/retirement which can include various incentives.

 

[daylatedollarshort]

Such withdrawals are not allowed from a 401k originating with an employer for which you stopped working before age 55.

They are if you are allowed to roll them over to the last employer 401K plan at time of separation, in the year you turn 55 or later.

We did this for DH. We rolled enough money to the 401K plan of his last job to live on for the next 4.5 years, if needed, less pension income. We can draw down money if and when we need it, penalty free.

 

[GravitySucks]

I retired at 54 in the year that I turned 55 and am able to withdraw from 401k without penalty. This was in the SPD, but I also got a verbal from both HR and the plan administrator. (Fidelity).
I moved most of my funds to a tIRA, but left enough in the 401k to cover expenses until I reach 59.5.
There is no issue with going to work somewhere else. They don't know if your 'officially' retired, or working somewhere else. I am not allowed to work for megacorp directly anyway. I can work for them through a staffing contractor though. (Never again!)

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[daylatedollarshort]

I moved most of my 401K into a tIRA after retirement from a megacorp at 55 and before 59-1/2 with no penalty or taxes. I also made a small withdrawal with no 10% penalty at 56 (age 57 for tax year - it was my last year I could file as single head of household so I had some "room in the 15%tax bracket").

It was clear in my SDP that that this is the way my 401K worked (I also got verbal verification before I retired). I thought all 401Ks worked this way since they need to adhere to the same Govt. regulations, but I could be wrong.

I guess the only thing in the OPs post I'm not sure about is the case of quitting. But why quit at 55 if you can you can retire or get a layoff/retirement which can include various incentives.

The moving isn't the issue, it is the taking out part that you can't do without penalty from a traditional IRA before 59.5 except for specific reasons -

Retirement Topics - Exceptions to Tax on Early Distributions

Perhaps my understanding is incorrect or dated, but I thought it worked like this U.S. News article -

"Workers who take IRA distributions before age 59½ generally need to pay a 10 percent early withdrawal penalty. However, people who leave their job during the calendar year they turn 55 or later can take penalty-free 401(k), but not IRA, withdrawals. "If you have to leave your employer between 55 and 59 and you think you are going to have to utilize some of those funds for living, then it's best to leave it in the 401(k) because you can take distributions without facing the penalty," says Danielson."

http://money.usnews.com/money/retir...4/smart-strategies-for-401k-rollovers-to-iras

 

[tmm99]

I would like to thank every one who contributed to this thread. I just called my 401K provider and she went over my question with someone else (took about 10 minutes for her to get back to me, which isn't to say what she researched with other associates is correct), but there was nothing stated in my company's 401K doc that 55 rule is available, so her answer was No. I will pursue it further if I do get laid off/quit and need money, but for now, I guess I will leave it alone (Maybe I will call them again in one year to see if they added any provisinoing.)

Over 70% of my assets are in tax deferred retirement accounts, so if I decide to move and buy a house in a rural area using cash before 59.5, it would make me feel better if I knew I could dip into my 401K if I needed it. (I do have a small Roth IRA, but I'd rather keep that in tact and some of the after tax assets I may not want to liquidate..) I may still be able dip into my 401K earlier to if my company changes its policy sometime before I leave the company (or I will be lucky enough that I won't need any extra money...)

Either way, I thank you all for your comments and advise!!