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Turning 55 and leaving your job? What to know about the IRS rule of 55
Rolling a 401(k) into an IRA between ages 55 and 59½ can restore the 10% early-withdrawal penalty, experts said.
- Under the IRS 'Rule of 55,' employees who separate from service in the calendar year they turn 55 or older can withdraw from their 401 or 403 plan without the standard 10% early-withdrawal penalty.
- Rolling a 401 into an IRA between ages 55 and 59 kills this exception, immediately reinstating the 10% early-withdrawal penalty on every dollar withdrawn from the new account.
- A 56-year-old retiree drawing $60,000 annually in bridge income incurs $18,000 in avoidable penalties over three years if rolling an $800,000 balance into a Fidelity, Schwab, or Vanguard IRA instead of leaving it in the workplace plan.
- Financial professionals advise retirees to keep funds in the old employer's 401 until age 59, or consult a fiduciary advisor or CPA to run the sequencing before signing any transfer documents.
- The SEC legally requires fiduciary advisors to prioritize client interests over sales commissions, a critical distinction when seeking guidance on retirement accounts to avoid unnecessary tax traps.
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Retire at 55 and Your 401(k) Is Penalty-Free. Roll It Into a Fidelity IRA and the Same Money Costs 10% Until 59½. The Rule of 55 Nobody Explains Before the Rollover Form Is Signed
Signing a routine rollover form after retiring at 55 can quietly trigger a penalty on money that was already penalty-free, and most retirees never see it coming until the withdrawal is already made.
·Lakewood, United States
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Coverage Details
Total News Sources24
Leaning Left1Leaning Right1Center22Last UpdatedBias Distribution92% Center
Bias Distribution
- 92% of the sources are Center
92% Center
C 92%
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