Guide
What Is the Rule of 55?
How to tap a 401(k) penalty-free before 59 1/2 if you leave your job at the right time.
Normally, withdrawing from a 401(k) before age 59½ triggers a 10% penalty. The Rule of 55 is an exception.
How it works
If you leave your employer (quit, are laid off, or retire) in or after the calendar year you turn 55, you can take penalty-free distributions from that employer's 401(k) or 403(b). For certain public-safety workers the age is 50.
Important limits
- It only applies to the plan at the job you just left - not old 401(k)s or IRAs.
- If you roll the 401(k) into an IRA, you lose Rule of 55 access.
- You still owe ordinary income tax on the withdrawals - only the 10% penalty is waived.
For penalty-free access from an IRA before 59½, look at 72(t) substantially equal periodic payments instead.
Put it into numbers: estimate the tax on an early withdrawal.