The value of the age 55 separation (applies to separations anytime in year 55 or later) hinges on the the plan’s distribution options for former participants. Some plans only offer lump sums, or restrictions on the number of partial distributions. The penalty waiver automatically applies to any distributions taken, but with a lump sum that penalty advantage could be erased by the large distribution spiking the marginal rate for the lump sum year. Even if participant split the distribution between a direct rollover and a distribution in any amount to cover living costs until 59.5, if there is more than a couple years wait until 59.5 the tax hit could be significant. Therefore, the participant should check with the plan administrator for post employment distribution options, or if participant does not want to tip off the employer about termination, they could ask someone they know who retired recently and might have been allowed partial distributions. Obviously, flexible distributions directly from the plan without penalty is a much better option than a rigid 72t plan as the other option for penalty waiver.

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