Originally Posted by Al18
I just reviewed IRS Publication 575 concerning the exemption from 10% penalty for 401K distributions after you've separated from service in or after the year you reach 55.
What would happen if you took a 401K distribution at age 55, then rejoined the same company 2 months later on a part-time basis? The period of separation doesn't seen to be defined in Publication 575. There is a related discussion on page 20/21 concerning Lump-Sum Distributions, but states this section only applies if the participant was born before January 2, 1936. I was born decades later.
From what I remember when using this same IRS code provision when I left my previous employer at age 56, is that it does not matter who you work for after receiving the distribution. You can even go back to the same company as a full time employee, IIRC, and the original distribution is still penalty free.
For safety reasons, I would recommend at least 30 days separation of service from your previous employer to keep the IRS at bay.