Rule of 55 for 401(k)

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L1: Rule of 55 for 401(k)
Just want to clarify two things on terminating from your employer in the year someone will attain the age of 55 and withdraw funds from their 401(k) related to that employer.
1) Under this exception to the 10% penalty, the amount that can be withdrawn is any dollar amount and does not follow a formula like under 72(t) distributions on an ira (lifetime, amortization, or annuity methods)?
So year 1, someone can take $50K with an attained age of 55.
Year 2, someone can take $30K, etc. with amounts differing each year based on need.
2) If someone has $400k in an IRA and they roll that IRA to the 401(k) before they terminate, since the IRA would be rolled into the 401(k), can they take advantage of the rule of age 55? If the rollover takes place after the termination date, can someone still use the age 55 rule as exception on those rollover dollars
I am more familiar with the IRA rules and setting up 72(t) distributions from an IRA, but on 401(k) plans I know they are a little different. I need to check the plan rules to see if they will even allow partial distributions.
I have someone getting laid off and will attain age 55 this year. I would rather he go the route of using the age 55 exception vs locking into a 72(t) distribution and having less flexibility. Plus hopefully he will find other employment soon, so the rule of 55 is looking more flexible from what I am reading in Pub 575, but it doesn’t answer all questions.
2019-02-08 04:31, By: brkr12002, IP: []

L2: Rule of 55 for 401(k)
You are correct on all points.
However, not all companies will accept a rollover into their plans, often because they do not want the added responsibility or a large influx of money. Further, not all company plans will allow periodic partial distributions after someone leaves the company.
For both of these reasons, the client should be advised that this might limit future employment opportunities.
Otherwise, your client is fortunate to have an advisor as astute as you are. There are not many financial advisors, brokers, or even tax practitioners who are as knowledgeable in this area as you appear to be. And there aren’t many who even know what a SEPP 72-T is, or about this website.
2019-02-08 06:29, By: dlzallestaxes, IP: []

L3: Rule of 55 for 401(k)
In addition, very few plans will accept an IRA rollover after separation from service. The federal TSP is a notable exception if there is still a TSP balance. However, if a plan would accept a post separation IRA rollover, the total plan balance would still qualify for the age 55 exception.
2019-02-08 16:11, By: Alan S, IP: []

L4: Rule of 55 for 401(k)
Thanks for clarifying that form me Alan
2019-02-09 02:05, By: brkr12002, IP: [2001:5b0:50c6:a1c8:7c4f:b542:a590:62b2]

L3: Rule of 55 for 401(k)
Thanks DLZ. Yes, we are doing a conference call to check and see if the plan allows for partial distributions so we can even use the age 55 exception and also check on the plan accepting incoming rollovers. Otherwise me might have to set up a couple ira accounts and set up a SEPP on one of the accounts.
Can you elaborate on what you mean by”For both of these reasons, the client should be advised that this might limit future employment opportunities.” He is looking for other employment, although probably at a lower compensation. What I’m hoping to be able to do from the 401(k) is set him up with distributions from that account to hold him over. When he gets new employment, reduce the amount of distributions from the 401(k) to an amount to just supplement his compensation. In about 2 years when expenses drop, stop the 401(k) distributions altogether. Are you saying he can’t go back to work at a new employer and take distributions from the old 401(k) plan using the age 55 exception?
thanks for the compliment. Just glad I don’t have to be a sales guy and can just focus on doing the right stuff for people
2019-02-09 02:22, By: brkr12002, IP: [2001:5b0:50c6:a1c8:7c4f:b542:a590:62b2]

L4: Rule of 55 for 401(k)
One aspect is finding a company that will accept IRA funds to be rolled over into their 401-K plan.
The second aspect is if that same firm allows periodic partial distributions to retirees after they leave the company.
A possibility could be for him to set up his own consulting firm, set up a 401-K in his new firm, and then roll the IRA and/or 401-K from his former firm into his new company. This should be done only with a professional retirement plan consultant.
2019-02-09 02:34, By: dlzallestaxes, IP: []