To qualify for the age 55 separation penalty waiver, the distribution must be taken directly from the qualified plan. However, the plan must provide for flexible distributions for this to be workable. He might find that the 401k is more likely to offer such distributions. The plan that does NOT offer these distributions can be directly rolled to an IRA, and the other kept in place until age 59.5 to fund penalty free distributions. If client finds that neither plan will offer anything other than a full lump sum distribution, then Plan B would be to roll them both over to an IRA and start a 72t plan to get the penalty waived. The only reason to open two IRA accounts is when a 72t plan is the only option, and one of the IRAs would be funded with the exact amount to generate the needed annual 72t distributions, and the other to be kept separate for emergency needs that would be subject to penalty but could be a safety valve to prevent busting the 72t plan.  But the age 55 waiver should be used if possible.

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