Financial Insights

Access 401K Assets Penalty Free

If you participate in a company retirement plan, such as a 401K, and leave your job (“separation of service”), you may be able to withdraw funds from your 401K plan without paying the 10% penalty associated with early withdrawals.

This “age 55 rule”, as it is commonly referred to, applies to employees who leave their job after turning age 55. If the employee leaves his 401K assets in the company plan, he or she can withdraw funds without the 10% early withdrawal penalty. While these distributions are still subject to income tax, the waiver of the 10% penalty is a huge benefit most are not aware of. Retirement assets that are rolled over from a 401K plan to an IRA are not eligible for the waiver.

One important note: it is the year the employee separates from service that matters, not the distribution date. To qualify for the penalty exception, separation from service must occur in the year the person turns 55 or older.

My advice: if you meet the age 55 rule and foresee a need to withdraw funds from your retirement account, do NOT roll your 401K assets into an IRA until age 59 ½ (when the 10% penalty no longer applies).

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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