401(k) age 55 rule

Explain how a 401(k) can distribute money to a retired person starting at age 55 without paying the 10% penalty?
Thank you
Frank



There is a special exception for it. In the following chart scroll down to “separation from service” under qualified plans and you will see the tax code section that grants the penalty. However, the participant must have separated in the year turning 55 or later to qualify, they cannot separate at 54 or earlier and then wait until they are 55 to qualify for the exception.
Retirement Topics Tax on Early Distributions | Internal Revenue Service (irs.gov)Retirement Topics Tax on Early Distributions | Internal Revenue Service (irs.gov)

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