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Rule of 55 calculator

Leave your job in or after the year you turn 55 and that employer's 401(k) can pay you with no 10% penalty. Check whether you qualify, how far the plan gets you, and what the rule is worth.

Leaving in the year you turn 56, you qualify. The 10% you don't owe on what the plan pays before 59½:

$20,000

That is 10% of $200,000 taken over the 4 years to 59½. The plan covers every year, with $200,000 left at 59½. Income tax still applies to every withdrawal.

Years from leaving to 59½
4
Counting the year you leave and the year you turn 59.
Years the plan covers at $50,000 a year
8.0
Before tax, with no growth.
Public safety employee?In a governmental plan (or a private-sector firefighter), the test is age 50 or 25 years of service under the plan, whichever comes first.

Income tax on withdrawals, state rules, growth and your plan's own payout options are not modeled. Some plans pay only a lump sum or limit partial withdrawals. The link carries your figures after the #, so you can save or share it. Your figures are not sent to us.

The year you leave decides it

The test is the calendar year you separate from the employer, not your age on the day. Turn 55 in November, leave in March of that year, and you qualify. Leave in December of the year before, and that plan never qualifies, however long you wait.

So the leaving date decides whether the exception applies. Leaving in or after the year you turn 55 opens that employer's plan to penalty-free withdrawals for the years to 59½; leaving a year earlier does not.

What it covers, and what it doesn't

It covers the 401(k) or 403(b) of the employer you leave. It does not cover IRAs, and it does not cover plans from jobs you left earlier. Rolling the plan into an IRA out of habit moves the money out of reach of the rule.

Governmental 457(b) plans are outside the 10% altogether, apart from money rolled in from other kinds of plan, so the Rule of 55 is not needed there.

Check two things with the plan first

The law allows the withdrawals; your plan decides how it pays them. Some plans allow only one lump-sum payout after you leave, which would push a whole balance into one tax year. Ask how partial and repeat withdrawals work before you set a leaving date.

A payout that could be rolled over usually has 20% federal income tax withheld when it is paid to you. That is a prepayment, not the final bill: your tax return settles the difference.

Questions people ask

Is it the age 55 or the year I turn 55?
The year. The exception applies if you leave the job in or after the calendar year you turn 55, so leaving in January before a December birthday still counts. Leaving the year before does not, and turning 55 later does not change that.
Does it matter if I quit, am laid off or am fired?
The statute says “separation from service” after age 55, which the IRS reads as in or after the year you turn 55, and neither gives a condition about why you left. So the test is the date you separate from the employer, the same whether you resign, retire, are laid off or are let go. Your plan's own rules still decide how it pays you.
Does the Rule of 55 work for an IRA?
No. It covers only the 401(k) or 403(b) of the employer you leave. IRAs are excluded, so rolling that plan into an IRA ends the exception for the money you move. For an IRA before 59½, the usual route is a 72(t) series.
What about 401(k)s from earlier jobs?
Each plan is tested on its own employer. A plan from a job you left before the year you turned 55 is not covered; a plan from a job you left in or after that year is.
Can I work again after using it?
The rule looks at when you left that employer. It sets no condition on working somewhere else afterwards.
Is the age different for police and firefighters?
Yes. For a qualified public safety employee in a governmental plan, or a private-sector firefighter, the test is age 50 or 25 years of service under the plan, whichever comes first. Answer Yes to the public safety question above and enter your years of service to check both. Police, firefighters and emergency medical staff of a State or local government are covered, and so are State and local corrections officers and forensic security staff, plus some federal groups. A corrections officer in a private-sector plan is not.

Money you take from a 401(k) is taxable income, and it counts toward the income that sets an ACA premium tax credit. The ACA subsidy cliff calculator shows the credit at the income you plan.

Sources: Internal Revenue Code §72(t)(1), §72(t)(2)(A)(v), §72(t)(3)(A), §72(t)(9) and §72(t)(10); §4974(c) (which plans the 10% covers); §3405(c) (withholding on eligible rollover distributions).