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Retirement savings can be a difficult subject to understand, making it tough to know what to do when unexpected situations arise. For example, what happens if you need to withdraw from your 401k before retirement age? Will you face hefty penalties?
According to the IRS, the answer is sometimes “no.” There are specific cases where you can withdraw funds from your 401k without penalty, thanks to the IRS 55 year rule.
The IRS 55 year rule allows individuals to begin making penalty-free withdrawals from their 401k account once they reach 55 years old, as long as they are no longer employed by the company sponsoring the plan. However, there are some key things to keep in mind before taking advantage of this rule.
First, it’s important to remember that while this rule may allow for penalty-free withdrawals, it doesn’t necessarily mean that the withdrawal itself will be free. This means that you may still face taxes on the money you withdraw from your 401k account. It’s important to speak with a tax professional before making any withdrawals to ensure you are aware of any potential tax implications.
Additionally, it’s important to keep in mind that while the IRS 55 year rule may provide some flexibility, it’s not a universal solution. Not all 401k plans may offer this option, so it’s important to check with your plan administrator to confirm whether or not you qualify.
Finally, it’s important to consider the long-term impact of withdrawing funds from your 401k account, no matter your age. Withdrawing funds early can impact your retirement savings over time, potentially leading to significant shortfalls in the future. Before making any early withdrawals from your 401k account, it’s essential to speak with a financial advisor to weigh the potential risks and benefits.
In conclusion, while the IRS 55 year rule may provide some much-needed flexibility for individuals seeking to withdraw funds from their 401k account, it’s important to carefully consider the potential tax implications and long-term impact on retirement savings. By taking the time to speak with a tax professional and financial advisor, you can make informed decisions that help you achieve your retirement goals.
The 55 rule says in the calendar year you turn 55, not after you turn 55.
What if you have 2 jobs. In my case, my first job is a full time and my second job is part time. Both jobs offer me a 401k. If I quit my part time, can I apply the rule of 55 and still work my full time job?
Thanks for clearing up I can take distributions if I retire before 55 as long as I retire the same year.
what about 403b's??
This is BS,i have talked with tax professionals,my plan administrator and my HR person at work,nobody has ever heard of this,i think they would know about this.
If you wait til your 55 do you pay less taxes on your 401K? Walmart, because of the way my fund is structured, i can't roll it into a Roth Ira. Very upsetting. I would like to address the potential tax debacle now and not years later. People don't understand why Walmart won't let me roll my 401K into a Roth!
In New York state, if you're 55, what do you pay on say 25,000? If it's not a roth aren't you still paying taxes on all that? A better question: if you're 55 and you quit that shit job, are there any taxes or penalties rolling it into a pre-existing M1 Finance brokerage account? Thanks!
Very good info Jazz, Looking at retiring early around the 55-56 mark because maxed out on the pay scale and loosing money each year do to inflation. 4 years to go.
Finer points to specific readers
Here's one I've been racking my brain on. I along with several others are leaving my IT job of 18 years on 5/28/19 due to restructuring. I am currently 53 with a December 25th birthday. I was told we are being offered a severance of possibly 6 months which would pay every 2 weeks for the rest of 2019 like normal pay. The 55 Rule says as long as you leave your job in the year you turn 55, you qualify. So, if I get severance for the remainder of 2019, Would I still qualify under the 55 rule since I turn 55 on December 25th of 2020?
Could someone who retired before 55(mid 40s), get a job at 55 with a company that has a 401k, rolled over their old 401k to the new employer plan and then “retire” again – would this qualify for rule 55? Thanks!! I plan to retire early and looking for ways to avoid the 10% penalty- thanks for your help
There are ways to get 100% of your 401k without taxes and penalties
That is exactly right. Its like being 59 1/2 at 55. Do not roll your 401K into an IRA at age 55-60. Once its there, you are back in the penalty box.
You would be better off doing 72t for a few reasons:
1. If you get terminated in your job before 55 you might screwed. You have to find another job with a 401k that doesnt restrict you and may not be as good as the plan you were in prior.
2. Your plan might require you to take a full disbursement of funds which you may have to pay a massive penalty.
When you do you retire at age 55 can you take payments… or do you have to take one lump sum until you turn 59?
Thanks great video!
Thanks for the video. This is the plan I hope to follow. 55 is the goal. I may try to build a taxable "bridge" fund to get me from 55 to 59 if I can max out my tax advantage vehicles first. If not I will use this rule.
This is awesome, 55 is the age I want to retire, is this a new recent rule or has been the same for years?
Hey Dustin is the IRS part of the government shutdown right now?
Dustin does thus somehow play into my plan? Lets chat
Thanks Dustin great info
what if i retired at 52 but want to withdraw between 55-59 1/2?
Thanks for covering this bit of info. I've spoken to a few others about this form of "early retirement," but usually I'm met with the blank stare of disbelief.