Layoff age 54- 60 day notice age 54- during the severence period you turn 55. In this scenario do you meet the requirement for penalty-free access to 401K?
9 replies (most recent on top)
You'd be best served by talking to your financial advisor, they would know.
Mine did, not exactly the same situation (72 t), but this is their job.
Cheers!
- You must leave your job the calendar year you turn 55 or later.
The rule of 55 doesn't apply if you left your job at, say, age 53. You can't start taking distributions from your 401(k) and avoid the early withdrawal penalty once you reach 55. However, you can apply the IRS rule of 55 if you're older and leave your job. If you get laid off or quit your job at age 57, for example, you can start taking withdrawals from the 401(k) you were contributing to at the time you left employment.
Your separation from service date is the end of your 60 day notice period. That is when WF considers you a non-employee free to employee elsewhere.
Is “separation of service” at Wells defined as:
- layoff notification date?
- end of 60 day period?
- end of severance payout?
The rule is if you turn 55 in the year you separate service, then you can take a penalty free withdrawal. They will still withhold 20% for taxes. If you roll it over to an ira then you lose that 55 exemption. Best strategy is to take a distribution of what you need from the 401k then rollover the rest to the IRA. Do 2 transactions.
That doesn't answer the question. Here's a specific scenario:
A 53 year old employee who qualifies for 12 months of severance gets laid off on November 8, 2024.
The 60-day notice ends Jan 4, 2025. Employee turns 54 this year and doesn't find another job.
Severance Ends Jan 4, 2026. Employee turns 55 this year. Does this meet the Rule of 55 requirement of leaving your job at 55?
@adu+1v2zLhrZ -Thank you.
If severance is continuing into the next year, and you turn 55 before severance ends in that year, does that qualify at all? I am guessing no, but cannot find anything to confirm.
If you turn 55 in the year you're laid off you can take penalty free withdrawals from a 401k (or 403b). But I think you also have to leave it in that 401k. You can't roll it over and then take withdrawals.
https://www.schwab.com/learn/story/retiring-early-5-key-points-about-rule-55
Yes. If you start work with another company, then you will lose the benefit