Retiree Tax Tip: The Age 55 Exception for 401(k)s
How to avoid the 10% early-withdrawal penalty when you tap your former employer's 401(k).
![](https://cdn.mos.cms.futurecdn.net/GgEoicTgjKrj2bK3rBwfcG-415-80.jpg)
Generally, taxpayers can't tap their retirement accounts penalty free before age 59 1/2. But like many rules, this one has an exception.
If you separate from service at the age of 55 or older, you can tap your former employer's 401(k) free of the 10% early-withdrawal penalty. You will still owe taxes on the money if it's withdrawn from a traditional 401(k). If you take out $20,000 at a 22% tax rate, for example, you'll owe $4,400 in ordinary-income tax, but you won't owe a $2,000 early-withdrawal penalty.
You can qualify for the relief regardless of whether you retired or were laid off. You just have to turn 55 by the end of the year you leave your job.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But beware: If you roll that 401(k) to an IRA when you leave the company, you'll forfeit the age 55 exception. You'll have to wait until you turn 59 1/2 before you can tap the money in the IRA penalty-free.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Stock Market Today: Dow Outperforms After IBM Earnings
Investors also parsed a strong reading on second-quarter GDP and a dismal decline in durable goods.
By Karee Venema Published
-
Try the 6 to 1 Grocery Shopping Method to Save Time and Money
The 6 to 1 Grocery Method can help you save money, reduce waste and eat healthier.
By Erin Bendig Published
-
What Does Medicare Not Cover? Seven Things You Should Know
Healthy Living on a Budget Medicare Part A and Part B leave gaps in your health care coverage. But Medicare Advantage has problems, too.
By Donna LeValley Published
-
Medicare Basics: 11 Things You Need to Know
Medicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
By Catherine Siskos Last updated
-
Six of the Worst Assets to Inherit
inheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
By David Rodeck Published
-
403(b) Contribution Limits for 2024: Good News for Teachers
retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
By Jackie Stewart Last updated
-
SEP IRA Contribution Limits for 2024
SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
By Jackie Stewart Last updated
-
Roth IRA Contribution Limits for 2024
Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
By Jackie Stewart Last updated
-
SIMPLE IRA Contribution Limits for 2024
simple IRA The SIMPLE IRA contribution limit increased by $500 for 2024 and workers at small businesses can contribute up to $16,000 or $19,500 if 50 or over.
By Jackie Stewart Last updated
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
By Jackie Stewart Published