72T vs Rule of 55

[HenryD]

Not wishing to hijack today's other 72T thread I thought I should ask my own question.

I have a solo 401k and other accounts at Vanguard. The 401k is tied to a sole proprietor LLC that is my sole source of income. I will terminate the LLC in 2025 at age 57.

Since I'm effectively firing myself at 57, can I just use the rule of 55 on the 401k? Or do I need to do a 72T?

I'm asking the question now so that I have plenty of time to move/consolidate accounts or do something else to prepare in the meantime. I do plan to build up some cash outside the retirement accounts, but I am not sure it will be enough to sustain us for two years - would it be better to just try harder to achieve that?

 

[pb4uski]

I don't know, but I would ask Vanguard.

 

[cathy63]

Not wishing to hijack today's other 72T thread I thought I should ask my own question.

I have a solo 401k and other accounts at Vanguard. The 401k is tied to a sole proprietor LLC that is my sole source of income. I will terminate the LLC in 2025 at age 57.

Since I'm effectively firing myself at 57, can I just use the rule of 55 on the 401k? Or do I need to do a 72T?

I'm asking the question now so that I have plenty of time to move/consolidate accounts or do something else to prepare in the meantime. I do plan to build up some cash outside the retirement accounts, but I am not sure it will be enough to sustain us for two years - would it be better to just try harder to achieve that?

You can use the Rule of 55 on a solo 401k. You don't have to fire yourself. The Rule of 55 applies even if you quit your job voluntarily.

Vanguard actually doesn't care what you use the money for. You can withdraw it at any time, and they will send you a 1099-R, which you are responsible for reporting on your taxes. In the case of a Rule of 55 distribution, you should file Form 5329 and enter the code for an early distribution not subject to the 10% penalty.

 

[HenryD]

You can use the Rule of 55 on a solo 401k. You don't have to fire yourself. The Rule of 55 applies even if you quit your job voluntarily.

Vanguard actually doesn't care what you use the money for. You can withdraw it at any time, and they will send you a 1099-R, which you are responsible for reporting on your taxes. In the case of a Rule of 55 distribution, you should file Form 5329 and enter the code for an early distribution not subject to the 10% penalty.

Thanks much!