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Started By
Message
Rule of 55
Posted on 1/14/26 at 11:51 am
Posted on 1/14/26 at 11:51 am
Rule of 55 for 401(k)
I am 55 , I will retire in October (56 then). My 401(k) plan administrator (Empower RET) says they participate in the RO55. When I ask them questions about it, they don't seem to want to give any info other than, yes we have it.
Questions
1. Does every 401k have to participate ?
2. Do you have to take a 1 time lump sum?
3. Do you have to take a specified dollar amount each month and that amount doesn't change?
4. Can you take different amounts each month based on your financial needs. Say $1,000 in January then $3,000 in February then $2,500 in March?
After talking with multiple people it might appear that all you do is at the end of the year, your plan administrator will send you a 1099-R and in box 7 it will have code 2 marked. Then you send your 1099-R with your other tax forms off to the IRS . And that code 2 in box 7 basically tells the IRS that your 59 1/2 years old and not to access the 10% early withdrawal penalty fee?
Is that's it ?
Am I missing anything else?
Thanks in advance!
I am 55 , I will retire in October (56 then). My 401(k) plan administrator (Empower RET) says they participate in the RO55. When I ask them questions about it, they don't seem to want to give any info other than, yes we have it.
Questions
1. Does every 401k have to participate ?
2. Do you have to take a 1 time lump sum?
3. Do you have to take a specified dollar amount each month and that amount doesn't change?
4. Can you take different amounts each month based on your financial needs. Say $1,000 in January then $3,000 in February then $2,500 in March?
After talking with multiple people it might appear that all you do is at the end of the year, your plan administrator will send you a 1099-R and in box 7 it will have code 2 marked. Then you send your 1099-R with your other tax forms off to the IRS . And that code 2 in box 7 basically tells the IRS that your 59 1/2 years old and not to access the 10% early withdrawal penalty fee?
Is that's it ?
Am I missing anything else?
Thanks in advance!
7
Posted on 1/14/26 at 12:46 pm to Pockets
quote:
1. Does every 401k have to participate ?
Sort of. It's an IRS rule, but not all plans allow partial withdrawals.
quote:
2. Do you have to take a 1 time lump sum?
Absolutely not!
quote:
3. Do you have to take a specified dollar amount each month and that amount doesn't change?
4. Can you take different amounts each month based on your financial needs. Say $1,000 in January then $3,000 in February then $2,500 in March?
You can vary it up.
https://www.fidelity.com/learning-center/personal-finance/what-is-rule-of-55
Posted on 1/14/26 at 1:58 pm to Pockets
If you are retiring, would it make sense to roll it over into an IRA away from your current company?
Posted on 1/14/26 at 2:43 pm to Pockets
They need to allow partial distributions.
Posted on 1/14/26 at 2:44 pm to Weekend Warrior79
quote:
If you are retiring, would it make sense to roll it over into an IRA away from your current company?
Probably not. You cant access an IRA penalty free at 55. The rule of 55 is a reason to not do a rollover right at retirement if you are 55.
Posted on 1/14/26 at 2:58 pm to notsince98
you can also do 72t. Just throwing that out there.
Posted on 1/14/26 at 2:59 pm to Pockets
Interesting tidbit from Gemini:
It also said Rule 55 is not required to be offered by employers and that 70% do not allow flexible withdrawals.
quote:
The "Gotcha" (What you are missing):
20% Mandatory Withholding: Because this is a 401(k) distribution, Empower is required by federal law to withhold 20% of the money for federal taxes immediately.
Example: If you ask for $10,000, they will send you $8,000 and send $2,000 to the IRS. You settle up the exact tax owed when you file your return, but you lose that cash flow up front.
It also said Rule 55 is not required to be offered by employers and that 70% do not allow flexible withdrawals.
Posted on 1/14/26 at 3:04 pm to AaronDeTiger
not sure how that is overly interesting. That is how taxing income works in this country.
And yes, not every employer's 401k has partial distributions enabled. You really have to get it clarified by your employer or potential employer.
And yes, not every employer's 401k has partial distributions enabled. You really have to get it clarified by your employer or potential employer.
Posted on 1/14/26 at 10:00 pm to notsince98
quote:
not sure how that is overly interesting. That is how taxing income works in this country.
Tend to disagree here.
The 20% mandatory withholding can force your gross income into higher marginal brackets (or force other income to be taxable that otherwise would not have been) vs withholding the exact amount of tax liability.
I see this all the time actually. People send Uncle Sam $20,000 in taxes that really only needed to be $18,000, and that extra $2,000 makes SS and/or qualified dividends taxable that otherwise wouldn’t have been, so instead of getting a $2,000 refund they’re only getting $1,500. Then you figure in opportunity costs and things like that and over withholding from a retirement account can be very expensive over time.
Posted on 1/14/26 at 10:02 pm to Pockets
OP, how did you come to the point that you’re retiring in 10m but don’t know how or if you’ll be able to use your 401k for income?
I’m not being a smartass- it’s a genuine question. So you know you’re good to never go back to work ever again but you don’t currently know how you’ll pay your first month of bills within the year? That seems like quite the head scratcher.
I’m not being a smartass- it’s a genuine question. So you know you’re good to never go back to work ever again but you don’t currently know how you’ll pay your first month of bills within the year? That seems like quite the head scratcher.
Posted on 1/15/26 at 1:14 am to slackster
My company has a pension. I will earn my 30 year credit somewhere around Oct. 4th. give or take a few days. I have to have worked 1801 hrs. to get it. 30 years full time = $4,800 a month. I also have $158.00 a month pension from working 5yrs 9 months part time. So if everything goes rt I'll get $4,958 a month starting 11/1/26. Insurance will cost me $200 a month and tax. So maybe $4,400? a month if I choose not to take a 75% or 50% survivor benefit. Those might bring it down to around $4,100/$4,200ish.
My 401k is sitting rt about $1,063,000.00 today. My wife works and probably will work till she is 62 (7 more years, I'll take my SS at 62 also). My plan is to only draw $3,000ish a month from my 401k. I net between $5,000 and $5,500 a month rt now. So just trying to keep it close in retirement.
My 401k plan says it participates in RO55, but the refuse to give me any written details.
Yeah, once I reach 30yrs pension credit, I'm done. Bossman is getting the double rods as I'm walking out the door.
My 401k is sitting rt about $1,063,000.00 today. My wife works and probably will work till she is 62 (7 more years, I'll take my SS at 62 also). My plan is to only draw $3,000ish a month from my 401k. I net between $5,000 and $5,500 a month rt now. So just trying to keep it close in retirement.
My 401k plan says it participates in RO55, but the refuse to give me any written details.
Yeah, once I reach 30yrs pension credit, I'm done. Bossman is getting the double rods as I'm walking out the door.
Posted on 1/15/26 at 1:22 am to slackster
I just had a long conversation with Principal myself last week. Here is what I learned, and it wasn't exactly what I thought.
This additional tax of 10% is the penalty paid if taken before 59.5.
I asked if I could roll my other IRA's into my Principal 401k before I left and if that would make ALL those funds available. YOU CAN NOT.
In my case, mine is all in a Roth 401k.
25% is employer input (not taxed matching)
25% is post tax monies I put in
50% is growth of all said monies.
I could pull my 25% I put in early without the 10% early withdrawal penalty, I've already paid taxes on it. good to go.
The 25% match, they didn't pay taxes. so no early penalty, but I'd owe taxes on deposited amount.
The 50% growth, no early penalty no additional taxes.
This additional tax of 10% is the penalty paid if taken before 59.5.
I asked if I could roll my other IRA's into my Principal 401k before I left and if that would make ALL those funds available. YOU CAN NOT.
In my case, mine is all in a Roth 401k.
25% is employer input (not taxed matching)
25% is post tax monies I put in
50% is growth of all said monies.
I could pull my 25% I put in early without the 10% early withdrawal penalty, I've already paid taxes on it. good to go.
The 25% match, they didn't pay taxes. so no early penalty, but I'd owe taxes on deposited amount.
The 50% growth, no early penalty no additional taxes.
Posted on 1/15/26 at 5:09 am to Pockets
Your company is required by law to have plan documents on file. Usually they’re available on the same website that tracks your 401k. Ask the 401k administrator for those. They’ll spell out what your specific 401k allows.
Posted on 1/15/26 at 6:37 am to oneg8rh8r
quote:
The 25% match, they didn't pay taxes. so no early penalty, but I'd owe taxes on deposited amount.
There would be an early withdrawal penalty if you took the employer match along with taxes being owed on it - unless you’re over 55.
To be very clear, you can roll the 401k into two separate IRAs - employer match would go into traditional IRA and your contributions would go into Roth IRA. There is no tax or penalties owed on either at that step, but there would/could be upon withdrawal to yourself.
Posted on 1/15/26 at 9:54 am to oneg8rh8r
quote:
In my case, mine is all in a Roth 401k.
If this is true, then none of this discussion applies. The rule of 55 applies to traditional 401k, not a Roth 401k. With a Roth, when you retire you can roll it over to your IRAs and go on about your business. You dont pay taxes on withdrawals of contributions but you should have plenty of contributions amount to get you to 59.5 or whatever is.
Posted on 1/15/26 at 10:12 am to Pockets
quote:
1. Does every 401k have to participate ?
2. Do you have to take a 1 time lump sum?
1) Yes; it's an IRS regulation. The rule of 55 just negates the early withdrawal penalty before age 59.5
2) Depends. You need to check if your 401k plan supports partial distributions in general. This has nothing to do with rule of 55 and it's up to each 401k plan to decide. If your 401k plan doesn't support partial distributions, then you'd have to take a single distribution for the balance of your account.
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