I am a little fuzzy as to how the Rule of 55 works or what I may need to do if I decide to pull $$ from my 401K (or my wife's) before age 59 1/2. A quick google seems to imply I need to be separated from my employer and only applies to assets in your current 401(k) and not money in a former 401(k). Well, here is my situation...
- Currently have wife/myself set up as W2's under an LLC I own (been this way since 2016). Previously, operated same business as a 1099.
- This is my last year of earning any real income and in 2021 (age 57) I plan on starting drawdowns from my investments.
- Plans are/were to keep my LLC alive for the potential one off consulting gig.
Questions...
- If I want to drawdown (without penalty) from my (or my wife's) 401K do I have to dissolve my LLC or fire myself & wife to show the IRS I am "separated from my employer"?
- I have used the same personal 401K as a 1099 and W2. How does the IRS decipher/define a 401K account as "former" or "current" in this case?
- Could I "rehire" myself in the future or go back to 1099 status and generate consulting income since I am no longer an employee of my LLC?
I don't need any of my 401K to live on for the long haul, but trying to make sure I have all my levers set to help minimize the tax impact on RMDs. Significant Roth conversions is an obvious strategy. Another thought is I could fire my wife from the LLC and pull from her 401k.
Anyone have more insight to the nuances of Rule of 55?
- Currently have wife/myself set up as W2's under an LLC I own (been this way since 2016). Previously, operated same business as a 1099.
- This is my last year of earning any real income and in 2021 (age 57) I plan on starting drawdowns from my investments.
- Plans are/were to keep my LLC alive for the potential one off consulting gig.
Questions...
- If I want to drawdown (without penalty) from my (or my wife's) 401K do I have to dissolve my LLC or fire myself & wife to show the IRS I am "separated from my employer"?
- I have used the same personal 401K as a 1099 and W2. How does the IRS decipher/define a 401K account as "former" or "current" in this case?
- Could I "rehire" myself in the future or go back to 1099 status and generate consulting income since I am no longer an employee of my LLC?
I don't need any of my 401K to live on for the long haul, but trying to make sure I have all my levers set to help minimize the tax impact on RMDs. Significant Roth conversions is an obvious strategy. Another thought is I could fire my wife from the LLC and pull from her 401k.
Anyone have more insight to the nuances of Rule of 55?