Reply To: The rule of 55, penalty free 401k withdrawal details

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#61110
Alan S.
Participant

All distributions from both plans will be penalty free after separation from service at 55 or later. However, the plan provisions determine what form of distributions are allowed. Some plans restrict distributions to a lump sum, others allow some flexibility, and still others complete flexibility. You will have to check your plan’s SPD or call the administrator to determine how broad your distribution options will be.

If restricted to a lump sum distribution, the additional taxes would probably offset the benefit of the penalty waiver. In such a case, many retirees are forced into a direct rollover and an inflexible 72t plan to waive the penalty. These plans are generally a last resort, but may still be needed. The better option is flexible distributions as needed from your former plan, at least until 59.5. So check with your plan to see if their distribution options are workable.