The rule of 55?

[daylatedollarshort]

Good luck on your plans, tmm99.

One last comment - DH's plan was with Fidelity and they had the plan documents online to review plus retirement plan reps that could answer all of these kinds of questions for us. I don't think you need a special 55 rule per se, just the ability to make periodic or annual withdrawals post separation at age 55 or later.

The IRS rules govern whether the money could be withdrawn penalty free, the plan would govern whether or not you can make periodic withdrawals.

 

[nuke_diver]

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.

Thanks good to know...I have an old company's 401K still as well (left it there because it contained a bunch of company stock and was doing well so saved me some work).

I'm not sure that they even allow the 55 withdrawl but I can check on it...or just wait a few years and it comes a mute point

 

[Rustward]

I have an old company's 401K still as well (left it there because it contained a bunch of company stock and was doing well so saved me some work).

Just to be clear, if you terminated employment from the "old company" before the year in which you turned 55, then this will not be an option for you.

 

[fritz]

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.

You could use the 72T rule if you move your 401K to an IRA - it's a minimum of five years of withdrawals and you have to be +59.5 when you stop.

72(t) Distribution Rules

"Once you’ve been taking the payments for 5 years and you’ve reached age 59½, you can discontinue the payments if you so desire."

 

[Cat-tirement]

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.

I had a similar experience. When I inquired about the 55 exception at my 401k, they were pretty straight-forward in telling me that it was allowed, and explained the different payment options.

However, with DW's 403b, it took three email rounds to get a good answer. First, they misunderstood the question. Second, they pretty much denied it. Finally, they apologized and said that yes, they do support it.

 

[RobLJ]

I'm in a 403b but it's similar, but with a rule of 80 to retire (age + service), which I meet this year. I plan to "retire" --or semi-retire--next year and draw 5% from the 403b.
Another option is to roll to an IRA and use the 72t, which is what DW might do if necessary (DW is younger)--the idea is to do this if we need it in the period before I can begin to draw Social Security or before I reach 66. In a pinch I can draw SS earlier between 62-66 and allow DW to wait until 70, to max out her SS.
There are probably other alternate card scenarios on the flop, but those are the main outlines.

 

[sengsational]

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, the 55 rule does not work for IRA's. BUT...you can roll a 401K from your old employer to your current employer, then quit in the year you turn 55 (or older), and have penalty free access.

...there was nothing stated in my company's 401K doc that 55 rule is available, so her answer was No.

I would ask for the plan document to be sent to you so you could scour it. When I did my research on this for myself, it wasn't obvious that it was possible, but after digging, I was confident that it was possible. Besides the summary plan description, you might inquire about a "Payment Rights Notice". In mine, it says "The 10% additional income tax does not apply to the following payments from the Plan: Payments made after you separate from service if you will be at least age 55 in the year of the separation." But they don't usually provide the PRN to you until you've left the company and they need to tell you how to disposition your 401K funds. I would be very surprised if you have mainstream 401K provider that doesn't allow penalty free after 55 withdrawls.

Just to be clear, if you terminated employment from the "old company" before the year in which you turned 55, then this will not be an option for you.

But you can transfer the old company 401K money to the new company 401K and have access to all of it. That's what I did. I'm still in my first 6 months of retirement (living off after tax money), so haven't needed to get any money out of the 401K, but it's there, penalty-free (but not tax free), when I need it.

 

[bulbar]

didn't know about this. thanks. my 401k plan does say tho that they will withold 20% for taxes

 

[Dog]

I plan to leverage this rule over the next few years until I'm 59 1/2 and can tap my tIRA.
Interestingly, my Vanguard representative wasn't aware of this option. I sent him the language which he said will be very helpful as he frequently gets asked this question.


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[Maenad]

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.

I don't think this is true. The FAQ on SEPP from the IRS gives an example of a 50-year-old with an IRA looking to avoid the penalty, and their table on exceptions shows "yes" for both 401(k)s and IRAs in the "equal payments" row.

 

[jazz4cash]

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!!

I would highly urge you to get yourself a copy of the SPD (Summary Plan Description) and get familiar with it. It's probably not a fun read (except for a few of us), but you should at least be able to wade through to see if the age 55 rule is available. Most of the time I contact my plan provider (Fidelity), they are not as familiar with the rules of my particular plan as I am. I will say, however they are great at explaining some of the details contained in the SPD.

 

[sengsational]

I think that the rule that was being discussed was the "separate in the year you turn 55 (or later)" versus the "equal payments" rule:

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

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 don't think this is true. The FAQ on SEPP from the IRS gives an example of a 50-year-old with an IRA looking to avoid the penalty, and their table on exceptions shows "yes" for both 401(k)s and IRAs in the "equal payments" row.

 

[MRG]

I think that the rule that was being discussed was the "separate in the year you turn 55 (or later)" versus the "equal payments" rule:

That's how I understood it too.

When I read my SPD it wasn't difficult to find or understand the plan allowed it(55 + and terminated from service). I know they can all be different, but mine was fell into the "Hardship Withdrawl" section.

I did have to explain it to the newer H.R. rep, but when I gave him the page number he said he'd confirm my understanding. In 24 hours I knewn the plan supported it and how it worked. This forum taught me how flexible mine is. Megacorp made it very easy for old timers to RE.

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[tmm99]

Thank you very much for the people who suggested me to get the Summary Plan Description from my 401K provider, as well as one poster telling me to be persistent. I called them back today and asked for the SPD (which happened to be online - the agent told me how to get to it.). The document clearly states that you can receive distributions without the 10% fed penalty "if you terminate employment after reaching age 55."

 

[unno2002]

[FONT=&quot]For 401k limits & rules see:[/FONT]
[FONT=&quot]http://www.irs.gov/pub/irs-pdf/p560.pdf[/FONT]

[FONT=&quot][/FONT]
[FONT=&quot]Re age 55, go to page 20
[/FONT]

 

[Dog]

Just got confirmation that I can take my 401k in one lump sum distribution or take a portion in distribution and roll the remainder over. I was hoping to be able to withdraw over two years to keep tax rate down and get me to 59 1/2.
Hmmm....will need to think about this.


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[tmm99]

Would it still qualify without paying the penalty if I quit my job after 55 and rolled over some of the 401K money from my current/last employer to an IRA at another brokerage firm and started the withdrawal from there?

 

[pb4uski]

I don't think this is true. The FAQ on SEPP from the IRS gives an example of a 50-year-old with an IRA looking to avoid the penalty, and their table on exceptions shows "yes" for both 401(k)s and IRAs in the "equal payments" row.

I think BBQ-Nut was not referring to a SEPP but just where one withdraws as needed/wanted.

 

[pb4uski]

Would it still qualify without paying the penalty if I quit my job after 55 and rolled over some of the 401K money from my current/last employer to an IRA at another brokerage firm and started the withdrawal from there?

No, unless you did SEPP.

 

[MRG]

Would it still qualify without paying the penalty if I quit my job after 55 and rolled over some of the 401K money from my current/last employer to an IRA at another brokerage firm and started the withdrawal from there?

When I did a rollover it had to be all or nothing. Not sure if that was plan specific or a regulation. YMMV.

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[pb4uski]

Thank you very much for the people who suggested me to get the Summary Plan Description from my 401K provider, as well as one poster telling me to be persistent. I called them back today and asked for the SPD (which happened to be online - the agent told me how to get to it.). The document clearly states that you can receive distributions without the 10% fed penalty "if you terminate employment after reaching age 55."

Great for you. Not all plans allow it. There is an old thread on this but as I recall back in 1996 there was legislation that allowed penalty-free early withdrawals if the plan participant left service after turning 55 (or it may have been the year you turn 55, I don't remember the details). Some plans made the requisite changes to their plan to allow it but others have not, which is why there is diversity out there.

 

[Dwhit]

I am living proof you can do it. I am 57, retired at the beginning of this year when I was 56. I withdrew a large chunk from my 401k and rolled it over to an IRA, but left enough in my 401k to last till I am 59 1/2. Now I make withdrawals from my 401k with no penalty as my retirement income. Works great!

 

[Samething]

I am living proof you can do it. I am 57, retired at the beginning of this year when I was 56. I withdrew a large chunk from my 401k and rolled it over to an IRA, but left enough in my 401k to last till I am 59 1/2. Now I make withdrawals from my 401k with no penalty as my retirement income. Works great!

That's not true for all plans. With my employers plan you can access funds in your 401k after or during the year you turn 55 without the 10% penalty (after your retire/resign) however you must take full distribution. In other words they make no provisions and it is not possible to take part of the assets and leave the rest in the plan.

 

[mathjak107]

it really is simple. if your plan allows for periodic distributions you can leave your job after 55 and take the periodic payments. if your plan does not provide for periodic distributions then your only choice is roll it over ,72t it and take your own periodic payments.

 

[Samething]

it really is simple. if your plan allows for periodic distributions you can leave your job after 55 and take the periodic payments. if your plan does not provide for periodic distributions then your only choice is roll it over ,72t it and take your own periodic payments.

Another consideration is if you have a significant amount of company stock that has gone up significantly in value in your 401k it might work to your advantage to calculate what the cost basis is for the stock and what kind of NUA value (taxed as a LTCG) it has. You might still make out well if you have to take a lump sum distribution because your plan doesn't allow periodic distributions. My 401k plan allows for distributions of stock held within the plan. But does not allow for periodic distributions. Worth talking to a CPA to find out if it is a good thing for your situation. YMMV