401(k) rollover glossary
Rule of 55
The Rule of 55 lets you take penalty-free withdrawals from your 401(k) if you leave your job in the year you turn 55 or later — but only from that specific employer's plan, and only before rolling over.
The Rule of 55 is an IRS exception to the 10% early-withdrawal penalty that normally applies to retirement account withdrawals before age 59½. If you leave your employer — for any reason, including layoff, resignation, or retirement — in the year you turn 55 or later, you can take penalty-free withdrawals from that employer's 401(k) plan without waiting until 59½.
This applies only to the 401(k) plan of the employer you are leaving. It does NOT apply to IRAs. If you roll your 401(k) into an IRA before you need the money, you permanently give up the Rule of 55 exception for those funds. You would then need to wait until 59½ — or use the less flexible 72(t) equal payment plan — to access the money penalty-free.
The rule applies in the calendar year you turn 55. If you were born in 1970 and leave your job in 2025 (the year you turn 55), the rule applies even if you leave in January and don't turn 55 until December. The trigger is leaving in the same calendar year you turn 55 or older.
Federal workers and certain other public safety employees (firefighters, police, border patrol) have an enhanced version: the rule applies at age 50.
If you are between 55 and 59½ and may need access to retirement funds before 59½, consult the liquidity tool before deciding to roll over. In many cases, keeping a portion in the 401(k) for Rule of 55 access while rolling the rest to an IRA is the optimal strategy.
Related tools
Frequently asked questions
- Does the Rule of 55 apply to IRAs?
- No. The Rule of 55 applies only to 401(k), 403(b), and most other employer-sponsored plans. It does not apply to IRAs. Rolling your 401(k) into an IRA gives up this exception for those funds permanently.
- What if I have multiple 401(k) accounts from previous employers?
- The Rule of 55 only applies to the plan of the employer you are CURRENTLY leaving. Old 401(k) accounts from previous jobs do not qualify, regardless of your age. You would need to have kept money in the current employer's plan to use this rule.
- Can I take any amount out, or are there limits?
- There are no withdrawal limits under the Rule of 55. You can withdraw as much or as little as you need. However, withdrawals are still subject to ordinary income tax — the 10% penalty is waived, but income tax applies.
Related terms
This glossary entry provides educational information based on IRS rules. It is not tax or legal advice for your specific situation.