Rule of 55

[sooner]

I retired this year at the age of 55. I have heard that the rule of 55 says I can withdraw any 401k or Ira money I want. Does this mean anytime from now on or just this year? And if I want to do this now or later how do I show this rule applies.

 

[REWahoo]

I retired this year at the age of 55. I have heard that the rule of 55 says I can withdraw any 401k or Ira money I want. Does this mean anytime from now on or just this year? And if I want to do this now or later how do I show this rule applies.

The IRS allows you to withdraw funds penalty free from a 401k, not an IRA. The rules are a bit tricky. Here is some of what Greaney over at The Retire Early Home Page has to say about it:

"You can make penalty-free withdrawals from a 401(k) at age 55. You must wait until age 59 1/2 to make penalty-free withdrawals from an IRA....[however] Your employer must make it convenient for an ex-employee to make retirement withdrawals, many employers can't be bothered...

Note: There is one fine point that many people miss in taking penalty-free withdrawals from a 401k at age 55. To do so, you must terminate your employment no earlier that the year in which you turn age 55. (See IRS Notice 87-13)..."http://www.retireearlyhomepage.com/wdraw59.html

 

[retire@40]

The IRS allows you to withdraw funds penalty free from a 401k, not an IRA.

What about Sec. 72(t)?

 

[REWahoo]

What about Sec. 72(t)?

Yes, he can go that route and use IRS Section 72(t)(2)(a)(iv)) to avoid the 10% penalty tax if he takes "substantially equal periodic payments" (SEPP) from an IRA. I was responding to his "Rule of 55" question, not what other options he might have.

 

[renferme]

Retiring at age 55 allows you to take periodic equal payments from your 401k with no penalty. You do not have to use the 72t method.
You do have to pay Fed tax though.

 

[FinanceDude]

Rule 55 is good for FIRE folks, no??

 

[sooner]

Retiring at age 55 allows you to take periodic equal payments from your 401k with no penalty.

What do you mean periodic equal payments? Can I Just take an amount once a year. Can I change that amount?

 

[Coach]

Retiring at age 55 allows you to take periodic equal payments from your 401k with no penalty.

What do you mean periodic equal payments? Can I Just take an amount once a year. Can I change that amount?

Yes you can, to both your questions. Again, remember that you have to terminate your employment in or after the year you turn 55 for this exception to the penalty. See IRS publication 575:

http://www.irs.gov/pub/irs-pdf/p575.pdf

Coach