How to Access Your 401(k) if You Decide to Retire at 55

"Saving for retirement in a 401(k) comes with several valuable advantages. Your contributions are made with pre-tax dollars, which lowers the amount of income you are taxed on. In addition, the investments in your 401(k) grow on a tax-deferred basis. Instead of paying taxes on gains each year, you owe taxes only when you eventually withdraw the money. There is, however, a drawback to using a 401(k) as your primary retirement savings tool."

"If you take money out before reaching age 59 and one half, you will usually face a ten percent early withdrawal penalty. That extra charge applies to the amount you remove. Even so, people who access a 401(k) at age 55 may qualify for certain exceptions. A Reddit user recently asked how those rules work. It is a smart question, because although some flexibility exists for withdrawing 401(k) funds at 55 without a penalty, it is important to understand exactly how that option functions."

Contributions to a 401(k) are made with pre-tax dollars and investments grow on a tax-deferred basis, so taxes are paid only upon withdrawal. Withdrawals taken before age 59½ typically incur a 10% early withdrawal penalty applied to the amount removed. The Rule of 55 allows penalty-free withdrawals from the 401(k) sponsored by the employer you leave if separation occurs in the calendar year you turn 55. The Rule of 55 does not apply to accounts from prior employers that were not rolled over, nor to IRAs. Early retirement at 55 requires planning because savings must last longer.

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