Confused

[MKTford]

Hello. I’m thinking about retiring and I’m confused on withdrawals from my 401k. I will be 55 in September and there is an exemption that says I can withdraw from my 401k if I retire or separate from my employer in the year I turn 55. Does anyone have experience in this?

[HI Bill]

If your employer's plan allows it, you can begin early withdrawals if you terminate employment between 55-59.5, penalty-free (no 10% early withdrawal penalty). You still have to pay taxes on the income if it's in a traditional, and not ROTH IRA. If this is your desire, you'll need to leave the $ in the company's 401(k) and DO NOT roll over to an IRA, or you lose this option.

[RunningBum]

Maybe you or a mod could change the thread title to something like "Confused about early 401K withdrawal at 55" to help future people who have the same question. Vague thread titles really aren't helpful.

You could also search for something like that in thread titles. I found this:

http://www.early-retirement.org/foru...5-a-97548.html
http://www.early-retirement.org/foru...5-a-95677.html

Probably others, I didn't look too long.

[MKTford]

Thank you. I changed the title.

[DFW_M5]

Yes, if your plan permits it. When I took an early out package from megacorp I was 54.5 at the time of the early out, which required me to be off payroll in November. Therefore was unable to take advantage of that provision. Nevertheless, the voluntary early out was too good to pass up, so I left anyway.

[Winemaker]

My 401k allowed withdrawals at 55 with a break in service. Damn right, they sold my subsidiary off. A year later, I decide to pull plug, withdrawals began at 56, it will be 5 years in October, 2-3.85% each year. Life is good, rather great.

[Dtail]

I separated from my employer at 55 y.o. and did take a small distribution the first year and just had to pay regular income tax.
Some 401k plans are more restricted, so do check it out first.

[Sunset]

OP - Hopefully you have a plan for health insurance as well, since that is a big thing.

Regarding 401K plans, watch for when your employer does matching. When they actually put their matching money into the account. Some do it once per year, and some don't give you the matching for the past year if you are not actually working at the match time.

[joeea]

Quote:

Originally Posted by MKTford Hello. I’m thinking about retiring and I’m confused on withdrawals from my 401k. I will be 55 in September and there is an exemption that says I can withdraw from my 401k if I retire or separate from my employer in the year I turn 55. Does anyone have experience in this?

This might help: https://www.thebalance.com/how-to-wi...or-ira-2894212

[skibum]

This is an allowed IRS exemption from the 10% penalty, and also requires that your plan allows this as previously noted. This is allowed by my plan and is part of my retirement income strategy. Fidelity is our 401k plan adiministrator, and they limit withdrawals to two per calendar year. I schedule my withdrawal in late Dec after other income sources are defined so I can adjust my final 1040 annual income to the top of the 15% bracket or ACA cliff. I receive a 1099R for the withdrawal with distribution code 2, indicating the early distribution exception applies. Taxed as regular income, no early withdrawal penalty.

[cynicalbuthopeful]

It's important to talk to your plan administrator about this. I too had intended to leverage the IRS rule of 55. But I found out that in the longer plan document, our plan requires 10 years in the plan (which I won't have). Your plan may also have rules about the distribution.