Using Rule of 55 to withdraw 401k funds while receiving Severance Pay

[G-Man]

Are you able to use the rule of 55 to withdraw money from a traditional 401k while still receiving severance pay? I called Fidelity and they were not sure due to the fact that I'm still receiving earned income from severance payments.

Anyone know the answer to my question?

FYI. According to company records, my employment status shows up as "extended severance".

 

[ut2sua]

Are you able to use the rule of 55 to withdraw money from a traditional 401k while still receiving severance pay? I called Fidelity and they were not sure due to the fact that I'm still receiving earned income from severance payments.

Anyone know the answer to my question?

FYI. According to company records, my employment status shows up as "extended severance".

I think if you can withdraw the $ from your 401K account, you are good. The IRS allows the rule of 55 (last time I checked). Companies may or may not allow rule 55 to function by not allowing people to partially withdraw their $ after termination which effectively disallow the rule of 55 (if they don't allow partial withdrawals). Regarding whether or not you are still officially with the company, I think only the company HR can tell you.

 

[G-Man]

I think if you can withdraw the $ from your 401K account, you are good. The IRS allows the rule of 55 (last time I checked). Companies may or may not allow rule 55 to function by not allowing people to partially withdraw their $ after termination which effectively disallow the rule of 55 (if they don't allow partial withdrawals). Regarding whether or not you are still officially with the company, I think only the company HR can tell you.

Our 401k plan allows the Rule of 55. I confirmed that many years ago. The twist is the fact that I'm still receiving earned income from the company in the form of severance pay. I assume I'm considered "separated" from the company and the rule of 55 would apply. That's my thinking. Just want to confirm.

 

[NgineER]

I'd say try to withdraw and see if you can. I can't withdraw from my 401k yet. But it is because I am still employed and under 55. I expect I'd be able to if I was eligible.

 

[pb4uski]

Are you able to use the rule of 55 to withdraw money from a traditional 401k while still receiving severance pay? I called Fidelity and they were not sure due to the fact that I'm still receiving earned income from severance payments.

Anyone know the answer to my question?

FYI. According to company records, my employment status shows up as "extended severance".

I'd wait for Fido to answer but as I recall it is based on whether you are still in service. Are you still receiving company health insurance and other benefits? Still earning vacation pay accruals. If not then I think your employment has been severed and you are no longer in service.

 

[G-Man]

I'd wait for Fido to answer but as I recall it is based on whether you are still in service. Are you still receiving company health insurance and other benefits? Still earning vacation pay accruals. If not then I think your employment has been severed and you are no longer in service.

Still receiving company health insurance and some other benefits through the severance period. However, I'm not earning vacation pay accruals. The status of my employment is "extended severance".