Ask Terry Questions 401K age 55

401K age 55

By Terry Savage on March 03, 2018 | Investments

Can I claim exemption to 401K 10% penalty if I withdraw 401K funds at age 55 and retired from full time position in 2017. However, I did get rehired by same employer in in part time position in 2018. I was out of work for almost 7 months.

Terry Says

No, there is no "exemption" from either taxes or penalty (except for the use of rule 72T, which I described in a recent answer, so check the section on investments).  That rule requires substantially equal regular withdrawals from your plan -- not just one withdrawal.  What you should have done is roll it over into an IRA rollover account, where the money could keep growing.  There would still be a penalty on withdrawals made before at 59-1/2 -- but the whole idea is/was to keep the money growing tax-deferred! If you did make this withdrawal in 2017, immediately check with your tax preparer because you are going to owe a lot of money in taxes and penalties on the return you will file in a few weeks!

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