401(K) Rule of 55 and roll over IRA funds in 401(K)

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LittleGreenSoldiers
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401(K) Rule of 55 and roll over IRA funds in 401(K)

Post by LittleGreenSoldiers »

DW(56) is considering leaving her current employer. She has a larger sum in a roll over IRA at Vanguard from a former employer. It could be advantages to move these roll over IRA funds to here current 401(K).
Does anyone know if there is an over riding IRS rule that states the Rule of 55 is only for those funds contributed under the current employers plan?
sailaway
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Re: 401(K) Rule of 55 and roll over IRA funds in 401(K)

Post by sailaway »

No.

However, has she confirmed that the current employer allows partial withdrawals at her age? Some do not.
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LittleGreenSoldiers
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Re: 401(K) Rule of 55 and roll over IRA funds in 401(K)

Post by LittleGreenSoldiers »

sailaway wrote: Mon May 03, 2021 10:04 am No.

However, has she confirmed that the current employer allows partial withdrawals at her age? Some do not.
We are about to inquire. If the above wasn't allowed by the IRS it wouldn't have been worth asking.
bradpevans
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Re: 401(K) Rule of 55 and roll over IRA funds in 401(K)

Post by bradpevans »

LittleGreenSoldiers wrote: Mon May 03, 2021 9:41 am DW(56) is considering leaving her current employer. She has a larger sum in a roll over IRA at Vanguard from a former employer. It could be advantages to move these roll over IRA funds to here current 401(K).
Does anyone know if there is an over riding IRS rule that states the Rule of 55 is only for those funds contributed under the current employers plan?
According to this link https://www.forbes.com/advisor/retirem ... etirement/ it is ONLY the 401k at the time of retirement, so rolling the other “in” would/could be beneficial

Assuming the current 401k would NOT be depleted by 59.5 it may not matter
Alan S.
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Re: 401(K) Rule of 55 and roll over IRA funds in 401(K)

Post by Alan S. »

The age 55 penalty exception is automatic for any qualified plan from which the participant separates from service in the year of the 55th birthday or later. Therefore, if the participant separates at 55 from one plan and again at 57 from the next plan, distributions from either plan qualify for the penalty.

Further, the exception applies to all assets in the plan including those rolled in from another plan or from an IRA.

The kicker is that unless the plan also allows partial distributions to former employees, the benefit of the penalty waiver is compromised since higher marginal tax rates could outweigh the benefit of the penalty waiver.
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