Retire early with the rule of 55 #401k
Dave Zoller, CFP®
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00:00 Their Story
01:09 The Problem
01:42 The Rule of 55
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Early Retirement With The Rule of 55
Many people dream of retiring early and enjoying their golden years without the stresses of work. However, the idea of early retirement can seem daunting, especially when considering how to finance it. Luckily, there is a little-known rule that can help individuals retire early without facing penalties for accessing their retirement savings too soon.
The Rule of 55, also known as the 55 Rule, is a provision in the United States tax code that allows individuals to withdraw funds from their 401(k) or other qualified retirement account penalty-free if they retire, quit, or are laid off from their job at age 55 or older. This rule provides a way for individuals to access their retirement savings early without facing the usual 10% early withdrawal penalty that applies to withdrawals made before age 59 1/2.
To take advantage of the Rule of 55, individuals must meet certain criteria. They must have separated from their employer in or after the year they turn 55, have a qualifying retirement account, and make withdrawals in a series of substantially equal periodic payments. It’s important to note that not all retirement accounts are eligible for this provision, so it’s essential to check with your plan administrator to determine if your account qualifies.
Early retirement with the Rule of 55 can provide a sense of financial security for individuals looking to retire before the traditional retirement age. By avoiding the early withdrawal penalty, retirees can access their retirement savings without depleting their funds. This can be especially beneficial for those who have saved diligently throughout their working years and are ready to enjoy their retirement without having to worry about financial penalties.
In addition to the financial benefits, early retirement with the Rule of 55 can also offer individuals the opportunity to pursue their passions and hobbies in retirement. Whether it’s traveling, volunteering, or spending time with family, retiring early can provide individuals with the time and flexibility to do the things they love.
While early retirement with the Rule of 55 can be a great option for some individuals, it’s important to consider the potential drawbacks as well. Withdrawing funds from your retirement account early can impact your long-term financial security, as you may not have as much saved for your later years. Additionally, early retirement can also affect your Social Security benefits, as retiring before your full retirement age can result in reduced benefits.
Overall, early retirement with the Rule of 55 can be a viable option for individuals looking to retire early without facing financial penalties. By understanding the rules and requirements of the provision, individuals can make informed decisions about their retirement planning. Whether you’re dreaming of early retirement or are considering it as a possibility, the Rule of 55 can help make your retirement dreams a reality.
Never knew about this rule, great video
We have a Solo 401k with Vanguard for my wife. If she retires at 55 and closes her business, does rule of 55 apply or are there issues with it being a solo 401k?
Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account.
That was a sign from the universe. Glad he was listening.
One of the hidden gems that does not get covered much. If your fortunate to be born late in the year you can wrap up at 54 and change. I think this may or some variation of it may be a better option Than a lot of the fire movement for some of us
You mentioned that rules can be different for government employees. That’s correct. My 457 plan allows penalty free withdrawals at any age once you’ve separated.
457B withdrawals can be done at any time without penalty after separation from the employer. Can someone verify that?
I'm already using the rule of 55 for small monthly Withdraws for expenses in retirement. Would like to do Roth conversions understanding I'd pay tax from my taxable accounts. No plans on using Roth money for a long time ( established Roth 15 years ago). Anyhow, there is no 10% penalty issue on the Roth conversion from 401k to Roth under the rule of 55?
Good video/content. Thanks for clarifying it’s THE YEAR you turn 55, you don’t need to literally be 55. Also good to note that just because the IRS allows it, doesn’t mean a specific plan allows it as well. “Check with your plan” is obvious, but always good to stress.
I will turn 55 next year. I recently called my 401k administrator but the person does not know if my employer offers the Rule of 55. I googled for the answer but not sure it is correct. Also, what are the specific steps to use the Rule of 55? Has anyone actually used the Rule of 55? I want to make use i will not get the 10% penalty.
We wish we had the rule of 55 provision in our 401k. We instead need to build a bridge account. Great content, just subscribed!
I have a 403b which does allow for the Rule of 55, so it does apply to some government plans.
Informative and to the point. Nice video!