Rule of 55 then IRA Rollover after 59.5
Hello! I just turned 58 years old and will be retiring and taking distributions from my current employer’s 401k using the rule of 55. My question is, will I be able to rollover that 401k to an IRA after I turn 59.5? I know I can’t do the rollover now because then I would be ineligible for the rule of 55. But is a later rollover allowed without penalty?
Permalink Submitted by Alan - IRA critic on Wed, 2025-10-08 16:19
A later rollover is allowed at anytime without tax or penalty.
What you need to do now is to determine if your 401k plan will allow you to take partial distributions after retirement. Some plans only allow total distributions and that compromises the value of the age 55 penalty exception because it forces you to withdraw enough to get you to 59.5. That said, 18 months worth would not be too bad.
For example, if your plan only allowed one total distribution, you would have to withdraw enough to cover your needs until age 59.5 and that would all be taxable in the year distributed. That might be 2025 or might be 2026. The rest of the plan would be directly rolled into an IRA on the same date as the taxable distribution.
Instead, if the plan allows you to take flexible partial distributions, you can just withdraw the amount you need periodically to get you to 59.5. Some might be taxable in 2025 and the rest in 2026 or 2027. Then do the direct rollover when you get to 59.5.