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 You will still owe taxes on the money if it's withdrawn from a traditional 401(k).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.
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.
-
Stock Market Today: Stocks End Higher in Whipsaw SessionThe main indexes were volatile Thursday with Nvidia earnings in focus.
-
Trump Picks Dr. Oz as Head of Medicare and MedicaidPresident-elect Donald Trump picked Dr. Mehmet Oz to lead the Centers for Medicare and Medicaid Services. Here's what to know about the former TV host.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
Medicare or Medicare Advantage: Which Is Right for You?From overall costs to availability of care, here's what to know about the differences between traditional Medicare and Medicare Advantage plans.
-
What Does Medicare Not Cover? Seven Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
Medicare Basics: 11 Things You Need to KnowMedicare 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.
-
Six of the Worst Assets to Inheritinheritance 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.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
