Author Topic: Question about going back to employer at age 55 to access 401(k) penalty free  (Read 1357 times)

Rylito

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If I left a 401(k) with a previous employer, and didn't want to bother with a Roth ladder or 72(t) distributions, would I be able to access the 401(k) penalty-free simply by going back to work for that same employer in the year I turn 55?

TheAnonOne

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Interesting concept. Though, I would think you could just roll all of your money into your current job's 401k and do the same thing?

As in, why does it have to be THAT employer?

Rylito

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I'm not sure if I can RE yet as I don't know what our housing costs will be in retirement, but I would like to take at least a few years off of work while my kiddo still lives at home.  Thus I don't plan to stay with my current employer until I'm 55. 

slappy

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I'm not sure if I can RE yet as I don't know what our housing costs will be in retirement, but I would like to take at least a few years off of work while my kiddo still lives at home.  Thus I don't plan to stay with my current employer until I'm 55.

Right, but the rule of 55 is not employer specific. So theoretically, you could go to any employer. I'm not sure if rolling your old 401k into the new 401k would make that money eligible for the rule of 55. The only other thing to consider is whether the plan allows partial withdrawals. Some plans are full payout only, so if you want to take out $1, you have to take it all out (rolling whatever you don't need into an IRA). Of course there's not really a way to know that prior to taking a job, unless you know someone who works there and you can ask them. There was a recent post on this forum from a person who wanted to use the rule of 55 but the plan was full payout only.

caracarn

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So to clarify, the only money available for penalty-free early withdrawal is the money that's in the plan to which you were contributing when you separated from service. If you have money in previous plans, such as at a previous employer, you can't tap those penalty-free unless you were to first consolidate them into your current plan.

Rylito

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Didn't know about plans that only allow full payouts...I'll have to look into that a bit more carefully.

I'm sorry that I wasn't clear about reasons for specifying a previous employer; the amount in that 401(k) (which I left with the employer, rather than rolling over to an IRA), is larger that the amount I have in my 401(k) with my current employer.  But theoretically it would be nice to know whether I could access either fund if I decided to go back to either employer.

caracarn

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Didn't know about plans that only allow full payouts...I'll have to look into that a bit more carefully.

I'm sorry that I wasn't clear about reasons for specifying a previous employer; the amount in that 401(k) (which I left with the employer, rather than rolling over to an IRA), is larger that the amount I have in my 401(k) with my current employer.  But theoretically it would be nice to know whether I could access either fund if I decided to go back to either employer.
Rylito, see my post before yours.  You must consolidate to your current plan to be allowed to access at 55. Anything in another plan is not accessible.

seattlecyclone

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Didn't know about plans that only allow full payouts...I'll have to look into that a bit more carefully.

I'm sorry that I wasn't clear about reasons for specifying a previous employer; the amount in that 401(k) (which I left with the employer, rather than rolling over to an IRA), is larger that the amount I have in my 401(k) with my current employer.  But theoretically it would be nice to know whether I could access either fund if I decided to go back to either employer.
Rylito, see my post before yours.  You must consolidate to your current plan to be allowed to access at 55. Anything in another plan is not accessible.

Technically there's no limit to the number of 401(k) plans you can withdraw from under this rule. You'd just need to have separated from service from each employer during or after the year in which you turn 55.

SKL-HOU

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Didn't know about plans that only allow full payouts...I'll have to look into that a bit more carefully.

I'm sorry that I wasn't clear about reasons for specifying a previous employer; the amount in that 401(k) (which I left with the employer, rather than rolling over to an IRA), is larger that the amount I have in my 401(k) with my current employer.  But theoretically it would be nice to know whether I could access either fund if I decided to go back to either employer.

You don’t have to rollover to an IRA. You can roll over old 401k into the new one making those funds accessible from the new employer.

caracarn

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Didn't know about plans that only allow full payouts...I'll have to look into that a bit more carefully.

I'm sorry that I wasn't clear about reasons for specifying a previous employer; the amount in that 401(k) (which I left with the employer, rather than rolling over to an IRA), is larger that the amount I have in my 401(k) with my current employer.  But theoretically it would be nice to know whether I could access either fund if I decided to go back to either employer.
Rylito, see my post before yours.  You must consolidate to your current plan to be allowed to access at 55. Anything in another plan is not accessible.

Technically there's no limit to the number of 401(k) plans you can withdraw from under this rule. You'd just need to have separated from service from each employer during or after the year in which you turn 55.
Your scenario is correct per the rule:
Additional exceptions for qualified retirement plans. The tax doesn’t apply to distributions that are:
• From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety
employees) (see Separation from service, later),

However let's be crystal clear for this particular thread.  That is NOT what the OP is asking.  He's not looking to hold down multiple jobs after turning 55.  Rather than going back to that employer to access the funds, I am suggesting they move it to the current plan (so that when they turn 55 it is their active plan).  Giving them options they are not needing just makes this confusing principle already more confusing.  I'm not sure how offering this fact to someone who gives no indication they want to do anything other than access their funds at 55 is helpful.

seattlecyclone

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Re: Question about going back to employer at age 55 to access 401(k) penalty free
« Reply #10 on: September 16, 2019, 10:33:50 PM »
The OP seemed to be quite fixated on returning to work at their former employer(s) for some reason, even after the possibility of rolling a 401(k) into a new employer's plan was mentioned. I just wanted to be clear that there was no limitation on using only one employer's 401(k) for the age 55 rule. If they wanted, they could return for a quick stint at each employer, and so long as they leave that employer in or after the year they turn 55 they could totally make direct withdrawals from both without paying early withdrawal penalties.

In fact, this could be a good way around the common problem where even though the tax code allows these age 55 withdrawals directly from an employer plan, many employers don't want to keep former employees around in their retirement plan so they have a rule requiring former employees to take out their whole balance the second they touch anything. Unfortunately these rules force former employees to roll their balances into IRAs, which don't have the age 55 rule at all. If you had two separate employers where you qualified for the age 55 rule you could take two separate withdrawals where you take the whole sum out of the 401(k) and deposit all you don't plan to live off of prior to 59-and-a-half into an IRA.