Move IRA to 401K for Age 55 rule

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airahcaz
Posts: 1523
Joined: Sat Oct 31, 2009 3:37 pm

Move IRA to 401K for Age 55 rule

Post by airahcaz »

Can one roll an IRA into 401K and immediately take advantage of withdrawals at age 55?

“Age 55 Rule (Early withdrawal?). Starting in the year that you turn 55, you can make a withdrawal from your 401k without the 10% early withdrawal penalty. You will still owe income taxes for a pre-tax 401k withdrawal, just not 10% penalty. For IRAs, you would have to wait until age 59.5. Potential early retirees may value these 4.5 years of additional flexibility.”


https://smartasset.com/retirement/401k-55-rule
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
OhBoyUhoh
Posts: 50
Joined: Wed Feb 10, 2016 2:16 pm
Location: SW Ohio

Re: Move IRA to 401K for Age 55 rule

Post by OhBoyUhoh »

I don't think it works that way, airahcaz. One thing for certain, not all 401k plans allow for withdrawals (plural) with this rule of 55. My plan only allows a 1 time distribution, so I don't see how that does me any good if I wanted or needed to use the rule of 55. I'll let others chime in on the movement of IRA to 401k. If it was a rollover IRA and the current employer allowed it to be rolled into the 401k, maybe then you could withdraw it with the rule of 55. (You would have to leave your job, you know that part, right?) . But a traditional IRA, not so sure it can be rolled into a 401k.

Good luck.
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 2:39 pm

Re: Move IRA to 401K for Age 55 rule

Post by Spirit Rider »

If the 401k plan accepts IRA rollover contributions. You can rollover IRA assets and then if you separate in a year you are >= age 55. You can take penalty-free withdrawals of your new 401k balance.

The 401k plan has no say in whether you can take a post separation distribution or that they are penalty-free withdrawals. The plan must report on Form 1099-R Box 7 the age 55 exception code.

However, as pointed out, a 401k plan does not have to allow discretionary partial withdrawals. E.g. The TSP only allowed such withdrawals starting 9/15/2019. While some plans only allow lump sum distributions. Most plans allow at least substantially equal periodic payments.

The bottom line: You will have to check with your plan to determine:
  • If they accept IRA rollovers
  • What their post separation distribution options are
P.S. If the only option is lump sum. You could distribute the minimum necessary to get you to age 59 1/2. The trade off would be the marginal tax rates of such a larger distribution.
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