Rule of 55 is it official?

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White Coat Investor
Posts: 13597
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Rule of 55 is it official?

Post by White Coat Investor » Sun Jun 17, 2018 11:46 pm

tibbitts wrote:
Sat Jun 16, 2018 1:04 pm
White Coat Investor wrote:
Tue Jan 23, 2018 3:56 pm
anonsdca wrote:
Tue Jan 23, 2018 4:13 am
My understanding also. Retire at 55 and have a company 401K and keep that 401k with CO, you can withdraw Tax free--if you retire after 55. I am counting on this for me. I have:

1) Tax account--anytime -55
2) 401k - 55
3) IRA - 59.5
4) SSN - 62

So my retirement is based on this. Retiring abroad.
That makes me cry that you would base important decisions on your life on IRS rules that you don't seem to fully understand. There are so many exceptions to the age 59 1/2 rule (particularly SEPP) that it should not be sued to determine a retirement date in any way, shape, or form. Retire when you're ready to retire and don't sweat these "rules." They're easy to work around.
In my workplace this is the case because of pension rules, not IRS rules, but the results are the same and not easy to work around. You can, as you say, feel you "fully understand" both the rules and the statutes behind them, but people who've spent years studying them still don't agree on interpretation. As with the IRS it's not any one person's fault, it's due to overly complicated rules, and the overly complicated laws they're intended to implement. In the case of the pension, the process of determining benefits for each person is entirely manual, so people with the same exact work history can receive completely different benefits, depending on who reviews the record. And you won't know until well after you've made the irrevocable decision to retire. The differences can be dramatic - commonly tens, or even hundreds, of thousands of dollars, depending on the luck of the interpretation lottery. So the tendency is to work longer, and that's counter-productive for both the individual and the organization, but it's what many people do.
If you can't get your pension, you can't get your pension. But getting around the Age 59.5 rule is relatively easily.
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

Norsky19
Posts: 51
Joined: Fri Jun 19, 2015 3:25 am

Re: Rule of 55 is it official?

Post by Norsky19 » Mon Sep 03, 2018 6:01 am

Question:

I have a sizable Pension plan and a 401k with my company. If I roll the pension over to the 401k does the pension lump sum also fall under the rule of 55 even though it was only recently added to the 401k upon termination? I understand that I must leave the money in the company 401k etc, just wondered if this can work......

Thanks!

Spirit Rider
Posts: 9178
Joined: Fri Mar 02, 2007 2:39 pm

Re: Rule of 55 is it official?

Post by Spirit Rider » Mon Sep 03, 2018 10:46 am

Norsky19 wrote:
Mon Sep 03, 2018 6:01 am
I have a sizable Pension plan and a 401k with my company. If I roll the pension over to the 401k does the pension lump sum also fall under the rule of 55 even though it was only recently added to the 401k upon termination? I understand that I must leave the money in the company 401k etc, just wondered if this can work......
Yes, this is also true for pre-tax traditional IRA assets rolled over to a 401k. Once any assets are in the 401k regardless of source, they are eligible for an exception to the early withdrawal penalty if you separate in the year you turn age 55 or later.

Alan S.
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Location: Prescott, AZ

Re: Rule of 55 is it official?

Post by Alan S. » Mon Sep 03, 2018 11:25 pm

Historically, the plans from which the age 55 separation exception applied could not receive new money after the separation. However, in the last two decades some portability options have resulted in some plans receiving rollovers of new money.

In the case here, the DB plan was rolled into the 401k post separation, but because there was a 401k balance however small prior to separation, all distributions due to the age 55 separation exception from that 401k will qualify for the exception. Few plans currently allow such post separation incoming rollovers, but the TSP is a notable example of a plan that will accept IRA rollovers post separation if you had a TSP balance prior to separation.

That said, the usefulness of these exception depends in most cases on the plan allowing flexible distributions between separation and 59.5. Waiver of the penalty does not do much good if the only option is a lump sum distribution, because if you had to distribute 4 years worth of living expenses, your marginal rate might rise 10%, offsetting the benefit of the 10% penalty waiver. You can usually work with partially flexible limitations, such as only one distribution per year, or the requirement of some form of fixed installment option.

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