What Is the Rule of 55 for Retirement?

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Even if songs proclaim everyone is working for the weekend, it is far more accurate to say everyone is working for their retirement. The permanent weekend of retirement serves as the light at the end of the tunnel that is the daily grind. There is even more of a push now for early retirement, and to be able to do so may take some maneuvering.

What Is the IRS Rule of 55 for a 401(k)?

The rule of 55 states that you can withdraw funds from your current job’s 401(k) plan without the 10% tax penalty if you leave that job when you are age 55 or older. This IRS provision allowing for penalty-free distributions could assist you in any early retirement plans. Early withdrawal from your 401(k) can also be helpful if you need a bit more cash flow before you reach age 59.

The Rule of 55: Retiring Early 

Your retirement savings ideally will last you the rest of your non-working life. The longer you leave your employer-sponsored retirement 401(k) or 403(b) plan, the more you’ll have stored away later. However, the year you turn 55, you can access these accounts without early withdrawal penalties.

In order to take advantage of of this, make sure you factor in the following:

  • Know the parameters of your unique plan: Many retirement plans offer allowances for the rule of 55 withdrawals. However, some plans require you wait until other ages, which can range from age 59 to 62.
    • It is also important to note that rule of 55 applies whether you left the job intentionally or by force after the age of 55.
  • Leave money in the plan: You can only withdraw these funds from your current employer’s plan. Otherwise, you could lose the rule of 55 tax protection and early withdrawal protection.
  • Reduce your taxes: By waiting until the start of the next calendar year to take advantage of the rule of 55 withdrawals, you can reduce the taxes you pay on your adjusted gross income, as you will not be working.
  • Public safety workers: For jobs such as air traffic controllers, police officers, firefighters, correctional officers or EMTs, you may be able to start withdrawals even earlier, at the age of 50, without penalty.
Are You Retirement Ready?

The Rule of 55: 401(k) Retirement Account Considerations 

All the separate accounts, ins and outs and intricate planning that go into your retirement create a delicate ecosystem. Make sure when you are taking advantage of certain early assistance, such as the rule of 55, you weigh the pros and cons and consider it from every angle.

Your Current Plan

Even if you have plans from multiple former employers, the rule of 55 only applies to your current employer. In order to take advantage of your other plans, make sure to roll them over to your current employer’s plan before you leave that employer. You may need to double-check whether your current employer allows rollovers.

You may also have the option to withdraw funds from your former employer’s plan if you get other employment before reaching age 59 ½.

IRA Plans

Funds from specific IRA plans can be accessed early if you roll them into your current plan while still employed. 

Time Your Withdrawals

Be sure to curate a careful strategy for withdrawals and time them to create substantially equal periodic payments. Your unique financial situation could affect not only your long-term plans but also what you pay in taxes.

Are You Retirement Ready?

Final Take: Will the Rule of 55 Work For You?

When considering if the rule of 55 could work for you, make sure you research whether or not making those withdrawals could put you in a higher tax bracket — or if your plan only offers one lump sum, which would take away the tax-advantaged retirement income. It is also crucial to understand you can only make rule of 55 withdrawals from your current employer’s plan if you turn 55, or are already over age 55, the year you leave that employer.


Here are some answers to frequently asked questions about the rule of 55 for retirement.
  • Can I use the rule of 55 and still work?
    • No, you cannot make rule of 55 withdrawals and still work at the company, as it only applies if you are age 55 or older and have left your employer.
  • Does the rule of 55 apply to everyone?
    • Though the IRS provision of rule of 55 can apply to anyone who wants to make withdrawals from their employer-sponsored retirement plan when they turn 55, there may be restrictions based on what type of plan you have through your employer.
    • You are also only given the tax protection if you withdraw funds from your current employer's plan.
  • Can I withdraw money from my 401(k) at 55 without penalty?
    • Yes, the rule of 55 states that you can withdraw funds from your current job's 401(k) plan without the 10% tax penalty, if you leave that job when you are age 55 or older.
    • This IRS provision allowing for penalty-free distributions could assist you in any early retirement plans.
  • Are there other 401(k) early withdrawal exemptions?
    • Yes, there are other 401(k) early withdrawal exemptions, such as the following:
    • Medical expenses in excess of more than 10% of your adjusted gross income
    • Permanent disability
    • IRS obligated withdrawals
    • Qualified disaster distributions
    • Active duty or other qualified reservists distributions
Are You Retirement Ready?

Are You Retirement Ready?

About the Author

Caitlyn Moorhead has written content for a variety of businesses and publications. After graduating from Central Michigan University cum laude, she moved to New York City where she wrote columns, articles and plays for several years before relocating to Austin, Texas in the fall of 2020.
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