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When it’s time to take money out of your 401(k) or IRA, the magic number is 59 ½. That’s the age at which you can withdraw money from a retirement plan without handing the IRS a 10% bonus on top of the regular taxes you will owe. Everyone knows that, right?
Judging from the mail I get, everyone does indeed. But what not everyone knows is that the age 59 ½ rule has more loopholes than Tiger Woods’ marriage contract. For most practical purposes, the penalty-free retirement age in a 401(k) is 55, and it can be lower still for an IRA. Early retirement, medical emergencies, job loss, early retirement, college education, a home purchase-all qualify as exceptions that can make your retirement money more available than you thought.
Here’s how it works:
Separation from service after age 55 (401(k) only) your 401(k) money becomes yours without a penalty if you leave your job after age 55. It doesn’t matter whether the departure was your idea or your employers’, or whether you permanently go fishing at that point or find another job the next day. You just need to “separate” from your employer.