I found myself wondering about this. And I figured many others might find themselves in this situation, so I thought I would post about this to the group. Surprisingly, this information was difficult for me to find.
So the Rule of 55 as it applies to a standard 401k is pretty simple. In the year you turn 55, if you retire, you can withdraw money from only your current 401k with no penalties. So it is a way you can get at your 401k money before 59.5 and avoid the early withdrawal penalty. Taxes still apply, but would apply after 59.5 as well.
The question becomes, so what if I have a ROTH 401k... then what? So after a LOT of searching... the answer seems to be this. You can withdraw from a ROTH 401k the same way... with no penalty. However, you will get hit with a pro-rated tax upon the amount you take out. This effectively nullifies the whole purpose of having a ROTH 401 k in the first place.
However, you CAN roll over your ROTH 401k to a ROTH IRA, with no taxes or penalties. And once there, at any age, you can withdraw what you have personally contributed without any taxes or penalties at all. (Provided that ROTH IRA account has existed for at least 5 years).
This is what I plan to do. I am thinking by the time I am 55, I will have personally contributed enough to my ROTH 401k(and Roth IRA), to get me to 59.5 without a problem.
So the Rule of 55 as it applies to a standard 401k is pretty simple. In the year you turn 55, if you retire, you can withdraw money from only your current 401k with no penalties. So it is a way you can get at your 401k money before 59.5 and avoid the early withdrawal penalty. Taxes still apply, but would apply after 59.5 as well.
The question becomes, so what if I have a ROTH 401k... then what? So after a LOT of searching... the answer seems to be this. You can withdraw from a ROTH 401k the same way... with no penalty. However, you will get hit with a pro-rated tax upon the amount you take out. This effectively nullifies the whole purpose of having a ROTH 401 k in the first place.
However, you CAN roll over your ROTH 401k to a ROTH IRA, with no taxes or penalties. And once there, at any age, you can withdraw what you have personally contributed without any taxes or penalties at all. (Provided that ROTH IRA account has existed for at least 5 years).
This is what I plan to do. I am thinking by the time I am 55, I will have personally contributed enough to my ROTH 401k(and Roth IRA), to get me to 59.5 without a problem.