You can make withdrawals from your 401(k) or 403(b) retirement plans without penalty before reaching at 59½. You will not face the 10% early distribution penalty if you leave your job in or after the year you turn 55, although you will still owe tax on pretax contributions and associated investment gains.
For the exemption to apply, you have to wait until you’re at least 55 to leave work, either voluntarily or involuntarily. If you quit your job or are laid off at age 54, you’ll still owe the penalty if you begin withdrawing the following year.
Another caveat: The exemption only applies to funds in 401(k) and 403(b) retirement accounts. If you roll those funds over into an IRA once you leave your job and decide to pull money out, you’ll be assessed the 10% early withdrawal penalty until you turn 59½. That’s an argument for leaving the funds in your 401(k) or 403(b) retirement accounts until you reach that age.
If your savings aren’t up to the task, you probably should not retire in your 50’s. And, you should aim to continue stashing money away while staying at your current job or seeking work elsewhere. Savers who are ages 50 and up can take advantage of catch-up contributions that enable them to sock away an additional $6,000 annually into a 401(k) or 403(b) on top of the $18,000 a year allowed pretax for younger workers.
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