has anyone who has been layed off before they were 59.5, able to tap their 401k using the rule of 55 and 10 years service to not get hit with the 10 percent penalty. I am wondering how much I can pull out per year till I reach 59.5. Benefits center not able to tell me since I'm not seperated from service but wish to retire early.
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You still pay the penalty but will get it back when you do your taxes
Definitely seek professional tax advice.
For my own situation, I retired after age 55 but before 59 1/2. At this point if I wanted to take money out I had two options that I know of: 72-T, or using the rule of 55. Either work and it really depends on your own situation.
Note that if you take this money out and don't roll it over into another retirement account, it is NOT tax free. However, it is free of the normal early distribution tax penalties.
There are rules you have to follow for the rule of 55:
- you have to be 55 when you separate, though I thought I've read you have to turn 55 in the year you separate, so in theory could be 54 and change, but I'm not 100% sure of that
- you have to leave your 401K in the Xerox plan, if you roll it over into an IRA then you can't use the rule of 55
- It only applies to the 401K for the employer at the time you left, you can't use an old 401K from a previous job (this seems weird.)
- you need to pay federal and state (if applicable) income tax on any withdraws, though the normal early 10% penalty doesn't apply.
- if you got rebadged to HCL, you probably will not be able to tap your 401K if you left it at Xerox because it only applies to the current employer. Best option, I think, would be to roll over your Xerox 401K into the HCL 401K assuming they have one, then when you retire or get let go, you can possibly use all the funds.
I'll say it again, and seek professional financial advice. If you are retiring early and plan on tapping your 401K, both the 55 and 72-T are reasonable options if you have enough.
Get professional advice for such a critical topic.
As one poster stated, 72T. Look it up. Anyone can withdraw funds without penalty rolling the 72t tax law guidelines. The rest of you are completely wrong.
The “original” post seems to imply that the monies withdrawn aren’t for a rollover, but cash. If for legit rollover or hardship - Yes. If for cash - No. Good luck...
Most of the prior comments here are incorrect. First, if you are 55 plus with 10 yrs of service you can leave Xerox anytime and Xerox will update your employment status from "Active" to "Retired". This is crucial for tapping into your 401K TAX FREE, according to IRS rules. It doesn't matter whether you were let go or left voluntarily, you will be forever cataloged as an official Retiree. Once you've separated, you will have immediate access to all your funds (RIGP and 401K). Since you asked about 401K funds let me focus on that topic. As a 55 plus retiree, you are now entitled to withdraw ANY or ALL funds at ANY TIME without any tax penalties. When you make a withdrawal, Benefits Center does prompt if you would like any Fed or State taxes withheld. You may decline the State withholding and then there are no Fed withholdings if you plan to "Rollover" the funds to an IRA. This is how you can escape paying any taxes when making a withdrawal. Of course you will receive a 1099R tax receipt at the end of the year to declare all the 401K withdrawals on your income taxes.
Personally, I left Xerox after 55 and have made dozens of smaller withdrawals from my 401K (mostly to rollover funds to safer investments) and have NEVER paid a dime in taxes. It's a wonderful thing.
@kcv+189dRKwE, this comment is precisely why nobody should ever come here for financial advice.
A hardship withdrawal is the only way that you can withdraw from a 401k early without a penalty. But the guidelines are very specific & dictated by the IRS. Early retirement or a layoff won’t do it. Google hardship withdrawal to learn more.
In response to an earlier poster, your 401k is yours & Xerox can’t touch it. If you have a pension, there is some potential risk to leaving that with Xerox.
72 T
Rule 55 - Good luck with that...Over 10 years of service, over 55 and laid off. Still got hit with the penalty.
Cash some/all out now, or risk losing it all the way things are??
401K's is just gambling money anyways... it's NOT YOURS until you cash out...