Rule of 55

[rj_nc]

I took early retirement shortly after turning 55. It's been about 3 years and I'm ready to start taking some distributions from the 401K in place at the time of my retirement (and maintained since my retirement). 

I understand that while I am not yet 59.5 years of age, I can take the distributions from the account (again, in place with former employer at the time of my retirement at 55+) without incurring the normal 10% penalty. 

Can someone 1. Confirm this basic understanding and 2. Provide some guidance for what to look for to ensure that, when I file taxes for 2024, that I have all appropriate paperwork, in good order, so that the filing goes through without issues or surprises?

[chines2 · Accepted solution]

You are correct in your understanding that there is an exception for early withdrawals under your set of circumstances.  Regarding your recordkeeping question, you might find this IRS resource helpful.

Thanks again for the question.

[chines2 · Accepted solution]

You are correct in your understanding that there is an exception for early withdrawals under your set of circumstances.  Regarding your recordkeeping question, you might find this IRS resource helpful.

Thanks again for the question.

[rj_nc]

Thanks chines2 - I appreciate the confirmation and feedback. I will check out the article!

[dmertz]

The 401(k) plan administrator should know that your separation from service from the employer providing this plan was made after age 55, so they should use code 2 in box 7 of the Form 1099-R to show that the distribution is not subject to an early-distribution penalty.  Still, if they use code 1 instead, you can claim the exception on line 2 of Form 5329 which TurboTax will prepare for you when you indicate to TurboTax the amount that qualifies for this penalty exception.