Retire as early as 55? The IRS Rule of 55 explained and how I am using it to fund early retirement

[@Veganisbadhunter-wx5nt]

I retired on my 55th birthday using the rule of 55. My employer did not require a lump sum distribution. I take monthly $2400 distributions from my 401K. 20% is withheld for taxes so I receive $1920/month. I'm debt free including my home so I don't need much money to live month to month. If you have this retirement option....take it

[@davidnprogress]

Thanks for sharing your story. Excellent that you have worked out your expenses to live on such a low withdrawal. Nice work.

[@July.4.1776]

Another good reason to always roll prior plans into your current company plan.

[@davidnprogress]

Very true!

[@bobbyt7448]

I used this and it's fantastic! Working a part-time job, I love. I have more in my 401k than when I started drawing down a couple of years ago. I'm also with Fidelity.

[@davidnprogress]

Working part time sounds like a wise choice. The returns have been good recently. Thanks for commenting as I am sure it helps others

[@J-2024-v8i]

What is key to have in writing is if your employer’s plan allows for ‘partial’ distributions in whatever amount you decide after separation from the company at 55 or after. If they allow it, you won’t pay a penalty on it ( as that’s the IRS rule) but only taxes. The problem is that some companies only allow a full distribution or a full rollover to an IRA, or sometimes a predetermined amount every year ( a %) based on the total balance. It’s really important to have it in writing. My former company plan didn’t specify it, and two Fidelity reps told me on the phone that the plan allowed it, to find out after I quit that it did not allow it when I tried to take my first distribution. All I got from Fidelity was an apology for the reps having given the incorrect information.....

[@davidnprogress]

Good information. The first time I called Fidelity, the person had not heard of this provision and could not answer any questions. I had to really dig to find people with knowledge. The key is in writing and before making any significant life changes.

[@retireearlywithme]

I’m turning 55 in 2025 and plan on using the full of 55. I confirmed with Fidelity on the phone and in person. After watching your video and reading the comments it sounds like I need to get it in writing. I did read my companies 401k and the Rule of 55 is mentioned ( just not called the rule of 55). I’ll look tomorrow and post again with the exact verbiage. I just found out about the full a few months ago. I was so excited and still am. I hope to join u in early retirement next year.

[@STF68]

be sure and read your company's rules, mine only allows 4 withdraws per year so I take out my yearly expenses in 3 withdraws which leaves me one extra withdraw for an emergency.

[@retireearlywithme]

@@STF68Yes. Mine is the same with a maximum of 4 withdrawals per year. With each withdrawal is a $25 fee as well. 4 withdrawals per year should be fine. Thank u for the reply.

[@lionmangolf]

My plan allows monthly distribution and quarterly distribution

[@xuandy88]

Haha, I turn 55 next year too. I heard of this in the past. but David explained in great detail. My plan is retire in 2026. my wife turning 59 and half. she can started to withdraw from her IRA. and We going to move to Thailand. already have agents line up to get a house and apply for retirement visa. life is sweet

[@cavy95]

It a one time withdrawal

[@Jamie-dz8dg]

I was also able to retire using this method. My company also allowed me to roll-in some pre-existing 401k money from other jobs so that I had it all within their plan. This gave me the numbers to allow me to cover expenses between 55 and SS at 68. Yes, I did say 68 per my retirement plan in New Retirement. Gives me the best income and tax outcome. Glad to see more content about this available because it really is a great option for those that have been willing and able to contribute to their retirement over the last 3 decades or so.

[@davidnprogress]

When I first heard of the Rule of 55, I thought it was too good to be true. Then, it was very difficult to get information about it. I'm excited to hear from someone else who has taken advantage of this. I have heard new retirement mentioned several times but have yet to try the tool. I will make a point to check it out. Thanks for the comment

[@Mike-mc8tj]

I had a time getting it in writing from my company, took months of bugging my HR/Retirement Dept, but they eventually said it was ok. Found out it was only because no one had ever asked them before, kind of surprised me. But then again, no one I’ve talked to(including friends, family, coworkers, and even a CFP), knew about Rule 55 and/or had any experience with it. But, at least it’s an option and one I plan to use in about 10 years. Thanks for the video and I’d like to hear 5 years from now your feedback on how it worked out for you in the long run.

[@davidnprogress]

Thanks, Mike! One reason I felt so compelled to do this video was that over the years, I could not find a single person who was actually using this rule. Plus, I asked more than one advisor who had never heard of the provision. My last role was in HR so I had a bit of an advantage to ask the top person in benefits. No peer HR person had ever heard of this. Stay tuned. I am sure I will do some things right and some things wrong. I will be transparent about the journey so that others will learn from me.

[@Mike-mc8tj]

@@davidnprogressthanks for the feedback and I hope it all works out for your future plans. In the meantime, I’ll stay tuned.👍🏼

[@retireearlywithme]

This is what’s in my 401K Summary Plan Description shows. See the bottom sentence for the thumbs up. Early Distribution or Withdrawals Generally, if you receive a distribution or withdrawal from the Plan before age 59½, the amount you receive will also be subiect to an additional 10% penalty tax imposed on early withdrawals as well as ordinary income taxes (unless rolled over to another employer's eligible retirement plan or to an IRA as discussed below). However, the 10% penalty tax will not apply to a distribution made before age 59% if it is: Paid to you after you separate from service with your employer during or after the year you reach age 55 👍🏻

[@davidnprogress]

You got it! That is what you need. My Summary Plan Description had no language addressing the Rule of 55. What is not clear is the specifics. Do they require a single distribution? Can you do multiple distributions during the year? This is the detail that can throw someone for a loop. Maybe wait to dig into this question after you are sure you are living shortly

[@retireearlywithme]

@@davidnprogressI’ve been talking to a coworker who recently retired and he forwarded the PDF he received. It looks like I can take 4 withdrawals per year (I’m fine with that), with the minimum being $1,000. They also charge a $25 fee per withdrawal. I could also roll it into a IRA or cash out. So basically up to 4 withdrawals per year. This should be no problem. Thank you for the video and information. You have a new subscriber 👍🏻

[@AgingOnYourTerms]

Yes! RO55 made my transition from laid off to retired possible. I am also with Fidelity, and we rolled 75% to a Roth and left 25% in the employer sponsored plan, in case I need to access it before 59 1/2. So glad KZbin suggested your channel. ❤

[@davidnprogress]

Thanks for the comment. It is very encouraging. I’m sure the ROTH has got to be comforting. More people need to know about the Rule of 55. It is a wonderful thing

[@rodbowles3104]

Aren't you suppose to roll over to an ira first then to a roth because of tax implications

[@AgingOnYourTerms]

@rodbowles3104 it depends on your financial strategy. We made these decisions after discussing with our Financial Planner and Tax Accountant.

[@tonylevine2716]

Folks, make sure you check with your company’s HR dept before doing anything!! Also, while the RO55 is good, I recommend you build up a bridge account(s) until 59.5 instead of dipping into your retirement accounts. Let them continue to grow.

[@davidnprogress]

Yes, very good advice Tony. Making sure to find where it is documented is good. People can be surprised if not allowed or if requires a lump sum.

[@lovinglife3954]

This proves why we shouldn't automatically do anything, especially not automatically roll your 401K into an IRA. Rule of 55 saved me. During an unexpected medical leave during which my entire work group got laid off, I was happy to find the rule of 55. I was 55 that year. A year earlier would have been tough. Luckily my employer's 401K allowed it, and the plan was decent and didn't have much restrictions. They had some weird rules about withdrawals but it worked out ok.

[@davidnprogress]

Yes. Best to get educated before making big moves. What is true now may not be true in the future.

[@edhcb9359]

Current company 401k just hit $1M this week and I turn 55 this year. It only took 13 years. Don’t want to be laid off, but no longer fear it.

[@davidnprogress]

Welcome to the 1.8%. Financial Independence is not all about retiring early. You are a good example about how it frees you of worry while still working

[@hardcor1313]

I did it at 54 in the year I turned 55 with no penalty drawing from my company 457b.

[@davidnprogress]

That is interesting to hear. Good validation that some plans indeed allow this the calendar year of turning 55

[@brucenelson8784]

I’m with fidelity also and retired on my 55th birthday. Best move I ever did. Thank you rule 55 plan. Also did a NUA to access my money to live on , and the rest in an IRA til I’m 59 1/2

[@davidnprogress]

That is fantastic to hear. Comments like yours are very encouraging for others to read. Thanks for leaving it!

[@deerhunter7268]

I should add that another option for penalty free early withdrawals is the SEPP or 72t distribution. This one is a little more complicated, but also isn’t limited by age. Maybe you could do a video on that also! Thanks

[@davidnprogress]

Thanks for the suggestion

[@STF68]

Retired September 2023 at 55 1/2 using the rule of 55 for my 401K and 72t for my wife's 401k, and Roth IRA's that are over 5 years old. 6 months and loving it.

[@davidnprogress]

Congratulations. Sounds like you jumped into this with a well thought out plan.

[@SteveOlsen]

I planned to use this, confirmed it worked with my company's plan, and retired at 55. But then my former company transferred the 401k program to a different company, and this company only supports lump-sum distributions! I asked if I could rollover part of it to my IRA and lump-sum the rest (to at least get one partial distribution) and they said unfortunately this is not allowed. So my best laid plan just stopped working. Be warned folks, this could happen to anyone. luckily it's only about 4-5 years you have to worry about it, but do yourself a favor and have a backup plan. I'm taking modest Roth contribution withdrawals for the next few years as my backup. Not as tax-efficient as I had hoped, but at least its tax- and penalty-free.

[@davidnprogress]

Thanks for this important comment. I had heard of the lump sum requirement but never considered that rules could change by a company moving to a different provider. Your advice about having a plan B is spot on.

[@retireearlywithme]

Did you receive a letter that was actually signed or just an email stating your company had the rule of 55 and you could use it? What kind of letter did you ask for and receive? Thank you.

[@davidnprogress]

Since it was not mentioned in the posted plan document, I reached out to the company director of benefits. She in turn, referred me to the person over the 401K plan and she responded via email. I worked in HR and had the advantage of knowing who to ask that would be at the highest possible level. I was also able to position the question as “I am getting this question from employees “. Mostly, I would make sure your response is from someone over the program. This could take some persistence.

[@retireearlywithme]

@@davidnprogressYeah. I don’t want to really ask my HR department at the moment as I don’t want them to know I plan on retiring next year

[@davidnprogress]

@@retireearlywithme I agree with that strategy as well. The language you shared is what you want to see. I think that is all you need for confidence. I am very excited for you

[@Darth_Sidious_66]

I'm so glad the government "allows" us to access OUR money.

[@douglash2630]

Turning 60 and retiring this fall - and cant wait. Thanks for the 411.

[@davidnprogress]

You are welcome. 60 seems like a good number. Close to social security if decide to take at 62 and loser to Medicare. Congratulations

[@douglash2630]

@davidnprogress yeap, I am fortunate as I am a retiring fed-employee and while still paying for it, will be taking my health plan into retirement.

[@travelingexpats]

Wow…great information! I’m assuming our TSP accounts are considered 401K accounts.🤷🏻‍♀️

[@davidnprogress]

I do not have experience with TSP, but I have found a couple of sources that say you can. The key is to check with the savings plan administrator and get it in writing. There is also a rule of 50 for employees who are in public service. (Think firefighter/law enforcement) The Rule of 55 totally changed my mindset.

[@WayneMarcy]

Hey, so I have a question. I’m getting ready to transfer jobs. I’m 57. I’ve known about the rule of 55 and have thought about it as a contingency in the event that I get canned so now if I transfer to another job at 57 and transfer my 401(k) money to the new job, can I still leverage the rule of 55 from the new job when I either retire get laid off or anything else?

[@davidnprogress]

You are very savvy to think this way. If the new employer plan supports the Rule of 55 then the answer should be yes. A good reason for some people to be sure and consolidate old plans before leaving a company. Being 57, you are pretty close to putting all this complexity behind you. Good luck on the new gig.

[@STF68]

review the old employers plan and see if they allow the rule of 55 withdraws, if so leave it. if they do not and the new employer plan does allow it yes roll it over ASAP.

[@loborocket]

My plan has a rule of 55 in the literature, but it states "when you reach the age of 55", not the calendar year when you will turn 55. Sounds like plans can kind of pick and choose on this, so i am not sure? I am not planning on leaving the very date I am eligible (3 years), but you never know how things could change so it is good to know I can ask the question about turning 55 or the calendar year you turn 55 and if there is a difference.

[@davidnprogress]

It's very important to check the specifics, and many HR Benefits people do not understand this provision either. Heck, I have asked financial advisors about this who have never heard of it. Being in HR, I had a bit of an advantage since I could ask the benefits director directly.

[@itguru2037]

Hi. I’m 56.5 and have a TSP as a federal employee. Are you saying I just have to pay the 20 percent and I can keep the rest? Should I pay off my debts with the money?

[@davidnprogress]

It would be very important to find out specifics through your plan administrator. In my case, state taxes were taken as well. Can’t answer the debt question. Everyone is different as far as expenses, savings and strategy to reach FI. I am fortunate to have been debt free now for many years. I did not completely ramp up the saving until after eliminating debt.

[@2112BigIrish]

I'm a federal employee too, and our TSP does allow for the Rule of 55. Just can't be contributing to it any longer, and then you can start to withdraw from it. If you are retiring (separating, resigning, etc.) any time after the calendar year you turned 55, OPM will send a notice to TSP letting them know you are retired. Then you can start distributions from it, they will hold 20% for Federal taxes and it is your option on whether they hold state taxes.

[@dogegamer3288]

If you have both a traditional 401k and a Roth 401k with separate balances. Can you rule of 55 keep just the traditional 401k with the employer and withdrawal, and take the Roth 401k and roll it into an Roth IRA? I know you have to keep it at your employer, but if I'm not withdrawing from Roth 401k can I roll that out and just withdraw from the traditional 401k kept at my employer? Anyone know?

[@davidnprogress]

That is an interesting question. Your 401K provider should be able to answer if you check with them.

[@stuartcasal5044]

wait so if I have a Roth 401k with my current employer and im 56 can I take my distributions penalty and tax free seeing that it is a Roth 401k??hmmm I am kind of confused can you please help thanks.

[@davidnprogress]

The Rule of 55 is specific for when you separate from a company and have a sponsored 401K plan. It cannot be utilized while still employed with that organization. ROTH in a 401K vs an IRA has some different rules and I recommend checking with your 401K provider for specifics. Here is the information on have from Fidelity: “While that makes early Roth 401(k) withdrawals more complicated, the Roth 401(k) does hold a unique advantage over the Roth IRA for early withdrawals. If you part ways with the company sponsoring your Roth 401(k) after you turn 55, you can access its contents for an early withdrawal penalty-free. You can also avoid taxes, if you first contributed to a Roth account at least 5 years before. Keep in mind that early withdrawals made from any type of retirement account miss out from potential future investment earnings.”

[@OurRetireEarlyJourney]

We wish we had this provision in our current 401K, it would be a no brainer for us! It's unfortunate that not all 401Ks providers offer this. We instead are building a "bridge" account to be able to retire early, it's a lot more work but it's worth it if you want to retire early.

[@davidnprogress]

There are many other ways. I do think I oversaved in the 401K, which is one of my financial regrets. I plan to talk about it later. Doing it over again, I would have more in my taxable account to take advantage of low to no taxes on gains and I would have started maxing out the HSA sooner. Thanks for continuing to watch and comment

[@lmen255]

Used last year and got a good tax refund this year. No debt, part time job, small pension, don’t live large.

[@davidnprogress]

Funny, over the years while saving, I would get down at times about living small. Small house, small car etc to save money. Meanwhile everyone else has the fancy cars, bigger houses better vacations. I realize even more now that those days of small are what is going to all this life we have now. Thanks for the comment

[@mattlawson4727]

I turn 55 in December 2025, but wait four months into 2026, can I still do this?

[@davidnprogress]

First you want to make sure that your 401K plan allows rule of 55 withdrawals since not every plan does. If so, then you can start the process at any time after the calendar year you turn 55.

[@SEEKERONE1]

You are spot on young fella. I have not had to dip into my 401K yet. But I will if I have too. I am 56 and still able to live without it so far. I am going to stay in retirement. Hell, life is too short. I did the math, and I can with draw for 30 years at a set amount this is without any gains. I thought the bird was outside my window. lololololol

[@davidnprogress]

It sounds like you have done a lot of planning. I am still working on not updating the spreadsheet every day. Perhaps the bird sound will help some people relax.

[@papasquat355]

Don't forget about public safety workers. They have a rule of 50 that applies to 401k's. These don't apply to IRA's, but are great for 401k's.

[@davidnprogress]

Excellent reminder. Thanks for posting this.

[@Westcoastguy]

Do you have to leave your job? Can you stay at your job and still get the money with NO penalty?

[@davidnprogress]

Key point. You do have to leave your job. If you quit, are fired, or are laid off, the reason for leaving does not matter.

[@Westcoastguy]

@@davidnprogress That's what I thought but just wanted verification. Thank you.

[@Shortcuts2185]

I believe the real term for this is called Seperation of employment but has to be in the calendar of when turning 55 which is dubbed the 55 rule. Like many have said no one really knows about this. My accountant didn't even know. My guess lot of people don't utilize this little gem. I did 2 months ago after turning 55. I was lucky that my company had no restrictions on how much or frequency I wanted to take. That means a lot. Had I been forced to take the whole amount out and be taxed on it or forced to place it in an ira then having to use the 72t rule I may have stayed working until 591/2.

[@HerbNavas]

Do you have to pay a fee every time you make a withdrawal from your 401K?

[@Shortcuts2185]

Not a fee but Fedility holds 20% for taxes so you need to be mindful of that.

[@thundersnow93]

Crucial question that I have: Can you roll over other IRAs or 401ks from previous jobs into your current employer 401k plan so as to be able to access those funds early at age 55 using the rule of 55? Or are those funds unable to be tapped no matter what until age 59.5 because they aren't with your current employer?

[@davidnprogress]

Yes you should be able to do this. I would call the customer service at your employer 401k to confirm. Keeping things in one account simplifies your strategy for sure

[@thundersnow93]

@@davidnprogress I don't know why more people don't talk about this rule of 55! If you've been disciplined over the years with your investments, there's no real reason why one couldn't at least consider this as an early retirement option. The main issue is health care/health insurance, but there are health sharing options out there to bridge the gap to 65, such as medishare (along with HSA). Also, I could not find any info in my company's retirement plan documents (they have vanguard) about the rule of 55.

[@davidnprogress]

Unless you have an old pension, the 401k is most likely the only retirement you have. On the health care side max an HSA, and get expenses low enough for subsidy. I was worried about cancer and ended up with a heart issue. I am in the hospital right now after bypass surgery. It has been terrible. Good news is that we have saving to cover

[@thundersnow93]

@@davidnprogress Praying for healing after your bypass surgery. So sorry to hear of that! We will patient in waiting for your next video. In the meantime, I will catch up on all the invaluable videos you made to help motivate and encourage us toward a possible early retirement scenario.

[@thundersnow93]

@@davidnprogress We are in a situation with a sizeable IRA from a previous employer's 401k plan. It sounds like it could be strategic to roll that IRA back into the current employer's 401k plan, as long as we expect to be with the current employer when reaching age 55. Definitely something to investigate further!

[@Jp-mn1rq]

If the company makes to take a lump sum, couldn’t you buy an annuity to last 4 years and roll the rest into an IRA?

[@davidnprogress]

I have no experience or knowledge about annuities. If I had a lump sum requirement, I do not think I would withdraw any money and instead would hang on until I reached 59 1/2 due to the tax hit. Knowing if you have the lump sum requirement is good since you could look at other strategies for bridging the gap from 55 to 59 1/2.

[@MrMulto]

can you take out the entire amount with the rule of 55 or withdraws only?

[@davidnprogress]

Most likely yes. Some employer plans actually require you to do this. check your plan summary document for details and your 401K provider. That is big tax hit to take at once.

[@MrMulto]

@@davidnprogress was just wondering because I had read somewhere that you can use the rule of 55 but must remain in the plan until you turn 59 1/2.

[@trueposition6329]

You should consider mega backdoor roth to reduce future tax

[@davidnprogress]

Good advice. Doing some ROTH conversions is part of my strategy especially next year. I will just have to be careful about my income since need to keep it low for the ACA subsidy. Thanks for the comment

[@lionmangolf]

Can you take a new job with a new 401k?

[@davidnprogress]

Yes! Wouldn’t that be great. New job and take some from rule of 55. I have thought of this if were to go back to work with a much lower paying job than I had before. Just have to watch taxes

[@deerhunter7268]

Great video! I plan to start using this in 5 years and 8 months;) I did get confirmation in an email from the HR Benefit administrator that my company does allow this, they just withhold 20% for taxes. I guess I do need to ask if they will allow for monthly distributions or just lump sum. What I didn’t know at the time I asked was that the Rule of 55 is in the IRS tax code, so I would highly question any public corporation saying that they don’t allow this and I would definitely be pushing them on it.

[@davidnprogress]

That five years will go by quickly. Keep up to date, as the employer can change the rules at any time. Good luck on your journey! and thanks for commenting.

[@deerhunter7268]

@@davidnprogress Your video prompted me to print the email from 2 years ago and I made an appointment to speak with a 401k rep next month to review the policy again. Thanks so much!

[@davidnprogress]

I hope your appointment went well

[@dougsowell]

My plan doesn't allow it. Booo

[@davidnprogress]

Well, that is a bummer. An alternative plan would be to have a good taxable account and then sell long-term held assets. If your income is low, you can work it out to pay 0 taxes as you bridge the time to 59 1/2. Something to consider.