Rule of 55 Workaround - Bogleheads.org (2024)

OP,

Why do you need to do that when there are other easier method to access that money?

Please check out the following URL.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool

I am pretty sure you can do this, if your 401k allows it. But you can also avoid all this hassle by taking 72t withdrawals https://smartasset.com/retirement/72t-rule

You can also do roth conversions yearly, and then once 5 years have elapsed, start withdrawing from the roth tax free https://www.fidelity.com/learning-cente ... -year-rule

Yes. Assuming the new employer plan allows rollovers in.

You can access the new plan’s funds on Jan. 1 of the year you turn 55 so no need to wait until your 55th birthday (unless it is Jan. 1).

Works best if the new plan allows former employee participants to take partial distributions. Edit - you can still use the ‘Rule of 55’ if the plan doesn’t allow partial distributions. But you would only get to do one ‘Rule of 55’ withdrawal in connection with rolling over the remainder to a TIRA.

In addition to the Roth convert & SEPP/72t.

- New Plan would have to allow for partial withdrawals.
- If you kept the plan you had at last job @45 in place, you can access at 55 anyway.

IANAL. This post seems to support the process.

https://www.hicapitalize.com/resources/rule-of-55-401k/

Remember that you can only withdraw funds from your most recent job’s 401(k) plan, so if you have a previous employer plan and didn’t perform a rollover to your new employer’s plan, you won’t be able to use that money.

But this has so many moving parts.
1. Going back to work, who wants to do that?
2. Ensuring the plan allows rollovers and partial withdrawals
3. Mandatory tax withholding.
I would probably do 72T (substantially equal periodic payments) instead.
Here is a sepp calculator.
https://www.bankrate.com/retirement/72- ... alculator/
Or some Roth conversions.

rob wrote: ↑Fri Jan 05, 2024 3:33 pmIn addition to the Roth convert & SEPP/72t.

- New Plan would have to allow for partial withdrawals.
- If you kept the plan you had at last job @45 in place, you can access at 55 anyway.

If the new plan doesn’t allow partial distributions, OP could still do one ‘Rule of 55’ distribution while rolling over the remainder to a TIRA.

OP can only access 401k funds penalty-free under the ‘Rule of 55’ if they separate from the plan’s sponsor (employer) as of Jan. 1 of the year turning 55, or later. So the funds if left in an old 401k plan where OP separated from service at age 45 wouldn’t qualify for a ‘Rule of 55’ distribution.

dink2win wrote: ↑Fri Jan 05, 2024 3:26 pmIs it possible to retire early (say 45) then at 54 go back to a job that has a 401k ...

Getting hired in your 50s after 10 years out of the workforce? I guess it's possible.

dink2win wrote: ↑Fri Jan 05, 2024 3:26 pmIs it possible to retire early (say 45) then at 54 go back to a job that has a 401k, rollover everything into it, then quit again at 55 then start withdrawing without penalty from the 401k?

Yes, this is technically possible if 1) your later employer's 401k plan accepts IRA rollovers and 2) that same 401k plan also permits rule of 55 distributions. Not all plans do both of those.

Also bear in mind that most 401k plans typically pass their administrative expenses on to the plan participants while offering fewer and often more expensive investment choices. This is why most people roll their 401k into an IRA upon separation from their employers.

Squirrel208 wrote: ↑Fri Jan 05, 2024 3:54 pm… Yes, this is technically possible if 1) your later employer's 401k plan accepts IRA rollovers and 2) that same 401k plan also permits rule of 55 distributions. Not all plans do both of those. …

All plans must allow IRS ‘Rule of 55’ distributions. But plans do not have to allow partial distributions. In that case, OP would only be able to do one ‘Rule of 55’ distribution in connection with rolling over the remaining 401k balance to a TIRA.

keystone wrote: ↑Fri Jan 05, 2024 4:00 pmAnother option - if you are able to establish a solo 401K, for example if you are a sole proprietor and have earned income, I think you could essentially stop working, ie retire at 55 and withdraw from the solo 401K without paying the penalty. What is nice about that is you can dictate how much or how little you would work until age 55.

The most popular mainstream prototype Solo 401k plans (i.e., Fidelity etc.) only allow in-service distributions at age 59-1/2. To access the funds at age 55, OP would have to terminate the plan. Again OP would only get one ‘Rule of 55’ distribution in connection with the full distribution of plan assets due to the termination.

HomeStretch wrote: ↑Fri Jan 05, 2024 4:04 pm

Squirrel208 wrote: ↑Fri Jan 05, 2024 3:54 pm… Yes, this is technically possible if 1) your later employer's 401k plan accepts IRA rollovers and 2) that same 401k plan also permits rule of 55 distributions. Not all plans do both of those. …

All plans must allow IRS ‘Rule of 55’ distributions. But plans do not have to allow partial distributions. In that case, OP would only be able to do one ‘Rule of 55’ distribution in connection with rolling over the remaining 401k balance to a TIRA.

Good catch, and thanks for the correction. I see now that I'd "misremembered" my own experience a few years ago when I encountered exactly what you describe after separating from my longtime employer. I had a large 401k balance and only wanted to consume a small portion of it to bridge the years between 55 and 59 1/2. In the end, to get around this restriction, I opted for a 72(t) SEPP IRA distribution instead because I could control the amount of the annual payments based on the size of the SEPP IRA when I set it up.

I didn't have any withholding on rule of 55 partial distributions because they were "periodic payments expected to last more than 10 years".
The test was the periodic payment amount multiplied out to 10 years had to be lower than the current plan balance.

I imagine it's not that common for 401-K plans to allow post-separation periodic payments AND be on top of the exemption to mandatory withholding, But it's possible.