Rule of 55

L1: Rule of 55During a down sizing presentation given a few years ago, the financial advisor [from a well known investment firm]discussed the “Rule of 55” within the topic of 72t distributions. His assertion was; if you retire at 55 there a lot more penalty free options available to access 401k funds (as opposed to retiring at 49, 53, 54, 56, 57, etc.). I have searched the net (including the IRS site) high and low and can find no references to this “rule”. Can you steer me in the right direction? By the way, great web site!!2005-03-27 12:13, By: tbone, IP: [209.165.189.18]
L2: Rule of 55Hello tbone:
IRC 72(t)(2)(A)(v) basically says you can take penalty free withdrawals from a qualified plan (usually a 401(k) or 403(b) but not an IRA) if you seperate from service during the year you attain the age of 55 or greater.
TheBadger
wjstecker@wispertel.net
2005-03-27 12:19, By: TheBadger, IP: [66.250.23.21]

L2: Rule of 55Wow, pretty prompt reply – and on Easter Sunday to boot!2005-03-27 12:23, By: tbone, IP: [209.165.189.18]

L2: Rule of 55Hello tbone:
If your interested; the book for sale here devotes a whole chapter to this very issue and the details on how to do it right.
TheBadger
wjstecker@wispertel.net
(the author)
2005-03-27 12:25, By: TheBadger, IP: [66.250.23.21]

L2: Rule of 55and this is why one should should not be too fast to effectuate a rollover from a qualified plan or 403b arrangement to an IRA if separation from service occurs during or after the yearoneattains age 55.2005-03-27 16:59, By: Joel, IP: [68.197.111.95]

L2: Rule of 55Hi Tbone.
I have never herad the term “Rule of 55” in any official capacity so I suspect it is something your briefer or his firm coined. Nothing wrong with that, in fact it might be a useful term to use to describe the situation of retiring or separating from a company either during the year you turn age 55 (called “attained age”) or older. To figure attained age simply ask your self how old you will be on December 31 or any particular year.
The interesting item I find in your post is why the briefer focused on retiring exactly at age 55. Before age 55 you have to deal with SEPP. But if you have “attained age 55” or are older when you retire or separate, the rule is the same and there’s no penalty for withdrawals from a qualified plan. Caution: When you do an IRA Rollover of your qualified plan, then you come under the IRA rules and age 59 1/2 comes into play.
Finally, let me endorse TheBadger’s book which you can buy through the home page of this web site. I am a financial planner and have found this book invaluable in my practice. It will answer more questions than you have now but are most likely to have eventually. This is an unpaid endorsement as I have to buy my updates just like you.
Good luck.
Jim2005-04-01 08:42, By: Jim, IP: [70.184.1.35]

L2: Rule of 55In orderfor the distribution to beexempt from the 10 percent penalty tax you need not be 55 upon separation from service.You need to have attained age 55 by the end of the year you separate from service. So if your birthday is November 1 and you separate from service on April 1, 2005 and you effectuate a distribution on May 1, 2005 the distribution will be exempt from the tax because you attain age 55 during the year you separated from service.2005-04-01 09:34, By: Joel, IP: [68.197.111.95]

L2: Rule of 55The exact wording from IRC Section 72…
72(t)(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS. –Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
72(t)(2)(A) IN GENERAL. –Distributions which are —
72(t)(2)(A)(v) made to an employee after separation from service after attainment of age 55, 2005-04-01 09:41, By: Gfw, IP: [172.16.7.101]

L2: Rule of 55Hello tbone:
Lots of people had difficulty interpreting “after attainment of age 55” back in 1986 – 7. As a result, the IRS issued Notice 87-13 as a clarification: “(ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.”
Thus, the more liberal interpretation that one must one only attain age 55 by 12/31 of year of separation versus actually being age 55 when separation occurs.
TheBadger
wjstecker@wispertel.net
2005-04-01 09:47, By: TheBadger, IP: [66.250.23.21]

L2: Rule of 55Actually just found the 87-13 reference – it your book! 2005-04-01 09:49, By: Gfw, IP: [172.16.7.101]

L2: Rule of 55WOW!
One more ringing endorsement for TheBadger’s book!
Jim2005-04-01 10:12, By: Jim, IP: [70.184.1.35]