Age 55 and Partial Rollover
I have a client that has separated from her current company plan after age 55. We can use the age 55 rule to avoid the 10% penalty, but can we roll over part of the plan to an IRA and still have the Age 55 penalty-free withdrawals available on the balance?
Example: $1,000,000 401k and we roll over $600,000 to an IRA. Can the remaining $400,000 still have the age 55 withdrawals?
Thanks
Permalink Submitted by Alan - IRA critic on Mon, 2024-07-22 15:56
Yes, the exception still applies to the portion not rolled over. But if the client distributes a large enough amount to last until age 59.5, the taxes on that distribution in a single year may offset the benefit of the penalty waiver. If the plan will allow flexible annual distributions as needed and not require a lump sum distribution, the client may want to leave enough in the plan to fund those annual distributions and only roll over at this time the amount they are sure to not need prior to 59.5.