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I'm currently 54 and turn 55 in October 2016 . I was laid off in June 2016 Can I withdraw from my 401k penalty free.

I was 54 at the time of the separation but turn 55 the same year. does this qualify under rule of 55.

Aug 08, 2016 by Jerry in  |  Flag
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Johnny Kang Level 1

Penalty free distributions are allowed beginning at age 59 1/2. You are however allowed to rollover the 401k penalty free to an IRA and either decide to take a distribution (pay penalty) or wait until retirement age. Your going to pay a penalty taking distributions before that age regardless and income tax.

1 Comment   |  Flag   |  Aug 12, 2016
Aaron

If you are at least 55 years old when you leave your job, you will not have to pay an early distribution tax on any distribution you receive from your former employer's retirement plan. (You will have to pay income tax on it, however.)

This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanently. You can go to work for another employer, or even return to work for the same employer at a later date. But you cannot receive a distribution from your employer's retirement plan while you are still employed with the company if you want to use the age 55 exception to the early distribution tax.

This exception is relevant only if you are between ages 55 and 59 1/2. After age 59 1/2, the early distribution tax does not apply to any retirement plan distribution.

As with other exceptions, the devil is in the details. For this exception, you need not be age 55 on the day you leave your job, as long as you turn 55 by December 31 of the same year. The strategy falls apart if you retire in a year that precedes the year you turn 55, even if you postpone receiving the retirement benefits until you reach age 55. This exception does not apply to IRAs. (See "Special Rules for Traditional IRAs," below.)

Flag |  Aug 17, 2016

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