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By : Raam Dhakad
KYD - Personal Finance
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The Rule of 55 can benefit workers who have an employer-sponsored retirement account such as a 401(k) and want to retire early.
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The Rule of 55 can benefit workers who have a 401(k) and need access to funds if they have lost their jobs at the end of their careers.
The Rule of 55 is an IRS provision that allows workers who leave their jobs for any reason to begin penalty-free distributions from their current employer's retirement plan once they reach age 55.
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This allows people who want to retire earlier than usual or who need more cash flow to be allowed to take distributions from their retirement plans as soon as possible.
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Taking distributions from a tax-qualified retirement plan, such as a 401(k), before age 59 is typically subject to a 10 percent early withdrawal tax penalty.
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However, the IRS rule of 55 may allow you to receive distributions after you reach age 55 (and before age 59 1/2), if your plan provides for such distributions.
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It is important to note that the rule of 55 does not apply to all 401(k)s and is not available to traditional or Roth IRAs at all.