If you’re thinking about retiring early or looking to access some of your retirement funds before age 59 and a half, the rule of 55 might allow you to do that today. I want to talk about the five questions you should ask before you utilize this exception. First, I want to introduce myself. My name is Warren Berger. I’m the owner of luminary financial advisors. We help create plans for people that are nearing or recently retired with an emphasis on saving money on taxes in retirement. So let’s talk about our five questions. And then the first question is really, what is the rule of 55 rule of 55 is simply an exception carved out by the IRS that allows you to access your retire. Certain retirement funds before age 59 and a half without paying a 10% penalty. The next question is, does the rule of 55 apply to all retirement plans?
And the answer is no, it only applies to company plans like a 401k or a 4 0 3 B. It does not apply to IRAs or IRA based plans like a SEP or simple IRA. That’s important to know sometimes that gets lost in the shuffle. People think that they’re going to be able to use their IRAs before age 59 and a half without penalty. That’s just simply not the case. It’s literally coming from the company plan, which leads to the next question, which is, are all distributions exempt from the 10% penalty after age 55? The answer to that is no. In order to qualify for the 10% exemption, you’ll have to separate from service from your employer in the calendar year that you turn age 55 or older. Furthermore, the the exemption only applies to the plan from that last company that you were at and would not apply to previous companies where you had 401ks.
And it literally would have to come from that 401k or 4 0 3 B. Another question that might come up is what if I separate from service? I leave my company in January. First of the year that I turn from age 55, but I don’t turn 55 until December of that same year. Can I still qualify for the exemption? And the answer to that is yes, as long as it’s within that calendar year, that you’re turning age 55, you would be able to claim the exemption from the 10% penalty. So our final two questions are somewhat related and the first one is what if I separate from service, I’ve left my company and I roll over my 401k or my 4 0 3 B to an IRA after age 55, would I still be able to qualify for the 10% the exemption from the 10% penalty?
And in this case, you would not, as I stated earlier, the exception only applies if you are receiving distributions from a company plan. So at the point that you rolled over your company plan to an IRA you’re no longer able to take advantage of the exception and you would be subject to the 10% penalty for early withdrawal if you take it before 59 and a half. So that leads to our final question, which is, well, what if I was to roll part of my 401k plan into an IRA, and I still wanted to be able to take distributions from
That original 401k plan and from the from a tax perspective you would be okay with doing that. As long as you were taking that distribution from that company plan the only thing that you would have to do is check with your company to see if they allow that some companies won’t allow partial rollovers to an IRA. So you would just want to make sure that you’re in the clear with the company first, but from a tax perspective, you’d be okay on that. I hope this has been helpful. And if it has please subscribe to the channel or click like, so we can get this out to more people. And if you look below in the comment section, I’ve included some links to some free resources. There are flow charts checklist that can help people as they’re preparing for retirement. And if you ever want to have a conversation about your personal financial situation, I’ve also included a link to my personal calendar for a complimentary phone call, where we can just get a handle on where you are and how I might be able to help you in the future. Thank you very much. And we’ll see you next time.
