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Rule of 55 and Rollovers
Old 10-22-2019, 09:02 AM   #1
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Rule of 55 and Rollovers

Hi all,

Fairly new member, and moving this question over to this forum from "Hi, I am... Getting Excited in PA" where I got a boatload of great information on possible ER.

My ER plan hinges on the ability to invoke the "Rule of 55" on my 401k, BUT... I'm also contemplating a job change to ride out the next 2 or 3 years. Where I'm looking to go has a 403(b) plan, which I understand are very similar to a 401k, so I assume I can do a rollover, but the basic questions I have are this:

When(if) I start a new job, and rollover 401k into new 403(b), proceed to work and contribute for the next 2 or 3 years, then retire, first, does "Rule of 55" also apply to a 403(b), and will I have access to the $$$ that was rolled over from the previous 401k?

Thanks,
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Old 10-22-2019, 09:08 AM   #2
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First, before you accept the new job make sure that you can roll your 401k money over to the 403b... and don't just take the work of some HR person... have them show you where it says so in the plan documents.

If you can't do as you plan, you may be able to do a 72(t)/SEPP.

On the last part I'm not sure but I would think that it would apply to everything in the 403b.... somebody who knows may come along soon.
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Old 10-22-2019, 09:29 AM   #3
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Rather than rollover a 401K plan to another employer's plan, you should roll it over to your own IRA at your brokerage firm.

You will have more investment options and be able to get money easier and faster.
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Old 10-22-2019, 09:36 AM   #4
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Won't that "lock" me out until I'm 59-1/2?


Quote:
Originally Posted by Senator View Post
Rather than rollover a 401K plan to another employer's plan, you should roll it over to your own IRA at your brokerage firm.

You will have more investment options and be able to get money easier and faster.
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Old 10-22-2019, 09:38 AM   #5
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Quote:
Originally Posted by Senator View Post
Rather than rollover a 401K plan to another employer's plan, you should roll it over to your own IRA at your brokerage firm.

You will have more investment options and be able to get money easier and faster.
An IRA does not allow withdrawals penalty free at 55 though.
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Old 10-22-2019, 09:41 AM   #6
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Originally Posted by Vacation4us View Post
An IRA does not allow withdrawals penalty free at 55 though.
You can do a T72 rule? Or use after tax money.

Or use the money from the new employers 401K until you are 59.5.
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Old 10-22-2019, 10:29 AM   #7
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My MegaCorp demanded that upon retirement I move my 401K into an IRA Rollover account. I just mirrored my FIDO accounts and rolled them over to an IRA with one telephone call. Only difference was different account numbers. I also combined the IRA account with my old IRA balances that had nothing to do with my company.

I would assume my employer had been paying some FIDO service charges.
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Old 10-22-2019, 10:30 AM   #8
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Quote:
Originally Posted by Senator View Post
.... Or use the money from the new employers 401K until you are 59.5.
He'll only be in the 403b for 2-3 years, not near enough time to save 4 1/2 years worth of withdrawals.

But.... tapping 403b for penalty free withdrawals combined with 72t penalty free withdrawals from his 401k (or a rollover tIRA) might work depend on what his numbers are.
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Old 10-22-2019, 10:32 AM   #9
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Quote:
Originally Posted by baseman250 View Post
Where I'm looking to go has a 403(b) plan, which I understand are very similar to a 401k, so I assume I can do a rollover, but the basic questions I have are this:

When(if) I start a new job, and rollover 401k into new 403(b), proceed to work and contribute for the next 2 or 3 years, then retire, first, does "Rule of 55" also apply to a 403(b), and will I have access to the $$$ that was rolled over from the previous 401k?

Thanks,
yes, 55 rule applies to 403B's also. But, you have to see if your plan allows it. Not all do. I left a job 10 month ago that did not allow it.
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Old 10-23-2019, 07:52 AM   #10
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I thought Rule of 55 was an IRS rule, not something plan administrators could restrict.



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yes, 55 rule applies to 403B's also. But, you have to see if your plan allows it. Not all do. I left a job 10 month ago that did not allow it.
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Old 10-23-2019, 08:12 AM   #11
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It is universal to my knowledge.... however, if the plan doesn't code the distribution as no penalty then you may need to file a Form 5329 to let the IRS know why your distribution isn't subject to the pre-payment penalty... which of course means that they may ask questions about it and you may need to provide relevant documentation to them.

Quote:
You must file Form 5329 if any of the
following apply.....
  • You received a distribution subject to
    the tax on early distributions from a
    qualified retirement plan (other than a
    Roth IRA), you meet an exception to the
    tax on early distributions from the list
    shown later, but box 7 of your Form
    1099-R doesn’t indicate an exception or
    the exception doesn’t apply to the entire
    distribution.
Quote:
The additional tax on early distributions
doesn’t apply to the distributions
described next. Enter on line 2 the
amount that you can exclude. In the
space provided, enter the applicable
exception number (01–12).
Quote:
01 Qualified retirement plan distributions
(doesn’t apply to IRAs) you receive
after separation from service when
the separation from service occurs in
or after the year you reach age 55
(age 50 for qualified public safety
employees).
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Old 10-23-2019, 09:14 AM   #12
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Quote:
Originally Posted by baseman250 View Post
I thought Rule of 55 was an IRS rule, not something plan administrators could restrict.
The IRS part of Rule of 55 says that the IRS won't make you pay a penalty on withdrawals from your 401k when you separate from a company in or after the year in which you turn 55.

However, the plan can dictate how much you can withdraw. It may say that you can only take everything out in a lump sum (i.e. to roll it over). It might say you can only take a fixed amount every year and you have to take exactly that amount every year from now on. There's no requirement that the plan lets you pull arbitrary amounts whenever you want to, like an IRA does.
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Old 11-04-2019, 12:35 AM   #13
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Just found out that my Company's 401K does not allow for partial withdrawals after you leave. I thought this would throw a wrench into my plans to retire next year, but I only need to make it through 1 - 1.5 yrs before I can access my IRA/401K accounts and I figure I can weather it out.
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Old 11-04-2019, 06:24 AM   #14
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^ Have you ever setup a Roth IRA? If so, has it been 5 years yet?

Withdrawal of contributions from a Roth IRA after 5 years since your first Roth IRA was setup will be tax and penalty free.

For anyone under 59 1/2 out there who doesn't have a Roth IRA yet, you may want to setup a small one to start the 5 year clock.

-gauss
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