The rule of 55 lets you tap into your 401 early without paying a penalty, but only if you meet the age requirement and other terms

Posted On: Sep 16, 2020   |   Posted By: Business Insider

The rule of 55 lets you tap into your 401 early without paying a penalty, but only if you meet the age requirement and other terms

Summary List Placement
It's easy enough to contribute to a 401 or 403 plan. But getting your money back out of these workplace retirement accounts can be more difficult. Unless you're at least 59½ years old, it usually triggers taxes and penalties.
But those who have reached the age of 55 have a special option to access their funds penalty-free. This "rule of 55" could save serious money if you want to retire early or need to make a one-time withdrawal from your plan to cover a major expense.
What is the rule of 55?
To discourage the use of retirement plan funds for non-retirement expenses, the IRS normally doesn't allow you to withdraw from your 401 early - "early" being defined as before age 59½.
If you do, you're dinged with income taxes - an automatic 20% of the amount you take out - plus an additional 10% tax penalty.
But the IRS makes an exception for the middle-aged. It spares you the 10% penalty if you have parted ways with your employer and are over 55 years old. If you're a public safety...

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