I want to retire at 55 but does that mean I have to leave a balance in my 401(k) until I'm 59.5?

Withdrawing funds from a 401(k) before the age of 59 and a half usually incurs a 10% early withdrawal penalty. However, under the rule of 55, individuals can access their 401(k) penalty-free if they leave their job in the year they turn 55. This provision is exclusive to the 401(k) associated with the employer they are separating from, making it essential to understand these guidelines to avoid unexpected penalties, particularly as many Americans approach retirement age.

If you withdraw funds from a 401(k) before turning 59 and 1/2, you'll face an early withdrawal penalty; however, there can be exceptions for people who tap a 401(k) at age 55.

The rule of 55 allows penalty-free withdrawals from a 401(k) only if you leave your job during the calendar year you turn 55.

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