Does the Rule of 55 apply to the calendar year you turn 55 or the day you turn 55?

[DoninGA]

What Is the Rule of 55?

Under the terms of this rule, you can withdraw funds from your current job's 401(k) or 403(b) plan with no 10% tax penalty if you leave that job in or after the year you turn 55. (Qualified public safety workers can start even earlier, at 50.)

[Murph88]

Okay, great, thank you. More questions:

What if I retire on Dec. 31st? As far as the IRS is concerned, what is my separation date- the last day I work (12/31) or the first day I am retired (1/1)? 1/1 will be in the calendar year I turn 55, and I will not receive a lump sum until Jan/Feb 2025. Is it the arrival of the money or the date of separation that matters?

thanks

Mike

[DoninGA]

If the funds were withdrawn in 2025 and you are age 55 in 2025 then the rule applies.  Your plan administrator should be able to tell you when the funds are actually withdrawn, so if that occurs in Jan/Feb 2025 you will receive a 2025 Form 1099-R from the plan administrator in January of 2026 to be reported on your 2025 return.

[Murph88]

Thank you. This is what I assumed, though what I read on the internet indicated "separation date" might need to be in the calendar year as opposed to "distribution of funds date." As long as the funds arrive in 2025 I am okay, even if my separation date might be 12/31, right?

[DoninGA · Accepted solution]

Correct.  You will be okay.

[Murph88]

Thanks for the help!