Rule of 55 question/ clarification

Submitted by Snapperhead199 t3_11eii6u in personalfinance

I am familiar with all the requirements to access the money once I separate from the company, my 401k plan does allow it. One thing I am not clear on is , do I need to start taking distributions before I take another job somewhere else to have access to this money? If I separate from this company at 55 , leave the current account where it is ( without beginning distributions/withdrawals) and go take another job. Could I then come back and take a distribution if I needed .(without 10% penalty). My plan administrator, my financial advisor and my CPA have given me mixed answers. My intention is to not make any withdrawals until I actually retire but I want the option of access to this money without penalty if the need should arise. Anyone have any experience with rule of 55 then getting another job?

Thanks

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mrg1957 t1_jaef4mh wrote

I used the rule of 55 after I retired, wasn't working, but I was never asked about my employment status. Based on how different providers handle distributions, someone else might have different rules.

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avalpert t1_jaeg168 wrote

There is no impact from taking another job - so long as you separated from that employer the year you turn 55 with an active 401(k) you can take withdrawals without penalty.

Can I ask who gave you an answer to the contrary?

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Snapperhead199 OP t1_jaerhra wrote

My 401k provider representative was unclear we could not find anything in the plan documents that said yeah or no.

My CPA said it was ok. But he said it’s (after you turn 55 , even though IRS.gov says “the year …”

My financial advisor thought I might have to go take one distribution but Was not sure. I’m 3 years away, just making plans , hope to scale back on hours and be closer to home from 55-65 and want to have access to this account if needed without 10% penalty. Thanks for the reply

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avalpert t1_jaes9em wrote

The 401k rep doesn't surprise me - it wouldn't be in the plan document and they can't be faulted for not being an expert of general tax law. The CPA was close but a shame, the financial advisor also probably should have known better.

To be clear though, you do need to fully separate from the employer, not just go part time.

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Snapperhead199 OP t1_jaeskr1 wrote

Understood. I would be taking another job at another company.

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DaemonTargaryen2024 t1_jaenua9 wrote

As long as you separate from Company A the year in which you turn 55 or later, and keep the money in Company A's 401k, you qualify for the Age of 55 rule for Company A distributions. Company B or C distributions do not qualify.

IRS does not care about future employment. Sometimes you hear the mistaken belief that you have to "retire" there for it to count, but it's not the case.

From IRS.gov:

>Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55

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