"Age 55 Rule" For Taking Money Out of a Company Retirement Plan... | Ed Slott and Company, LLC

"Age 55 Rule" For Taking Money Out of a Company Retirement Plan...

Please explain how the 'Age 55 IRS Rule" applies to this senario:
If I left a company before age 55 and left my 401k in that company and then, hired onto another company at a 55 or older and moved my 401k from the former company into the new company and then left this new company anytime between age 55 and older, is the penalty still waved? In other words, in this secario, my 401k is now in the hands of the new company and I'm 55 or older, does the "Age 55 Rule" apply to the 401k money I moved over from my previous company as well as the new money I make with the new company?

Yes, the exception applies to any funds in the new company including rollover funds from prior plans or even from your IRA accounts. All you have to do is separate from the new company at 55 or later. That said, the value of this penalty exception is limited if the new company does not allow you to take flexible distributions after separation. If you had to take a lump sum, even though there would be no penalty the amount of the lump sum could increase your tax bracket.  

Thanks very much for your answer and giving it so quickly!


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