(Another) Rule of 55 question

[silvor]

I left Megacorp A in February. I was 55 and my 401k is still there (800k 401k, 300k Roth). They allow one rule of 55 withdrawal per year.

I joined Megacorp B and have been contributing into the Roth 401(k). It’s only been a few months, but the job is not going as I had planned.

If I leave Megacorp B, will I still be eligible for the rule of 55 for Mega Corp A?

 

[sengsational]

How would the plan administrator of A's 401k even know anything about your employment status?

 

[RetiredHappy]

From reading on the internet, you should be able to withdraw if you left after you turned 55, withdrawing in the same year or after.

 

[silvor]

How would the plan administrator of A's 401k even know anything about your employment status?

They wouldn’t, but the IRS would, right?

 

[GenXguy]

From reading on the internet, you should be able to withdraw if you left after you turned 55, withdrawing in the same year or after.

Or even in the year that you turn 55.

 

[RetiredHappy]

Or even in the year that you turn 55.

Yes, that is what I meant. Same calendar year.

 

[sengsational]

They wouldn’t, but the IRS would, right?

Each plan administrator is required to follow IRS rules, but not report on your employment status. Each plan would send the IRS a form if you take out money. That's all the IRS cares about. I would suggest that the form sent by A's plan provider would be the same, irrespective of your employment status at B.

But that's saying just what I said before, so probably not satisfying. How about this, A's plan provider has a plan description that allows withdrawals if you leave in the year you turn 55 or older. That is in alignment with the IRS rules. Does that plan also have a special rule about follow-on employment? Probably not, so you're in the clear. But you could call your A provider and ask, I suppose. It would be bizarre to hear they added such a clause.

 

[silvor]

Maybe I’m reading into this…

What Is The Rule Of 55 And How Does It Work? | Bankrate

The rule of 55 can benefit workers with an employer-sponsored retirement account such as a 401(k) who are looking to retire early or need access to the funds if they’ve lost their job near the end of their career.

www.bankrate.com

• Current plan only: If you have funds in multiple former employer plans, the rule applies only to the plan of your current/most recent employer. If you have funds in multiple plans that you want to access using the rule of 55, be sure to roll over those funds into your current employer’s plan (if it accepts rollovers) before you leave the employer.

Schwab sort of confirms the first part, but not the rolling over part. Clear as mud.

Charles Schwab

2. You can withdraw only from the plan specific to your most recent employer​

Before you start taking distributions from multiple retirement plans, it's important to note the 401(k) withdrawal rules for those 55 and older apply only to the plan with your employer at the time you leave your job.
In other words, you can only take those penalty-free early 401(k) withdrawals from the plan you were contributing to at the time you left or were let go. The money in other retirement plans must remain in place until you reach age 59½ if you want to avoid the penalty and potential additional tax liabilities.

So if I’m reading this right, I am out of luck using the rule 55 on my former employer because I got a new job. But, at least according to bank rate, I can roll them all into my new employer, quit, then use the role of 55.

Ugh.

 

[Al18]

I think you misread #2. You can only take withdrawals from your former employer’s plan. Do not roll over the old 401K to your new plan.

 

[SevenUp]

I think you misread #2. You can only take withdrawals from your former employer’s plan. Do not roll over the old 401K to your new plan.

+1

silvor, see the law itself: IRC Section 72(t)(2)(A)(v): there is no 10% penalty on distributions "made to an employee after separation from service after attainment of age 55."

 

[Al18]

You may want to reconsider making any Roth 401k contributions at employer B, because if you leave that employer after 2 years or less, typically the employer will take back all of their contributions.

If it were me, I would just make Roth IRA contributions on my own. I believe you can max out Roth IRA contributions at $7500 per year, plus extra if you are over age 50.

 

[pb4uski]

I left Megacorp A in February. I was 55 and my 401k is still there (800k 401k, 300k Roth). They allow one rule of 55 withdrawal per year.

I joined Megacorp B and have been contributing into the Roth 401(k). It’s only been a few months, but the job is not going as I had planned.

If I leave Megacorp B, will I still be eligible for the rule of 55 for Mega Corp A?

According to Gemini... Yes and I think that makes sense as others have explained but Gemini explains well.

Yes, you will absolutely still be eligible.

Joining Megacorp B does not erase or override the fact that you met all the IRS requirements for Megacorp A's plan when you left.

The IRS Rule of 55 requires that you separate from service during or after the calendar year you turn 55. Because you left Megacorp A in February of the year you were already 55, that specific 401(k) permanently qualified for the exemption. Going back to work for a different employer—and subsequently leaving them—does not change your status with your previous plan.

 

[Gallaher]

Lots of different thoughts here. May want to contact a CPA or even call the IRS.
When I’ve contacted the IRS, they answered me verbally and then sent follow up support documents.

 

[OK EE]

I left Megacorp A in February. I was 55 and my 401k is still there (800k 401k, 300k Roth). They allow one rule of 55 withdrawal per year.

I joined Megacorp B and have been contributing into the Roth 401(k). It’s only been a few months, but the job is not going as I had planned.

If I leave Megacorp B, will I still be eligible for the rule of 55 for Mega Corp A?

Yes. Plans are treated individually. If you have 3 jobs all with 401Ks you can withdraw from all three accounts assuming you left during the year you turn 55 or later.

Starting another part time gig doesn't invalidate the 401K from the previous job. As a matter of fact, if you change jobs the year you turn 55 or later you can withdraw from the 401K from the earlier job (assuming you don't move it) even if you don't retire.

 

[sengsational]

Yes, like I said, withdrawal from A's plan has nothing to do with employment status. If you're dumb enough to roll A to B, then you've SOL, but that ain't the situation.