The IRS offers a pretty sweet tax break on 401(k) plan contributions. So in exchange, it sets restrictions on the amount of money you can contribute to these plans and the age at which you're allowed to take penalty-free withdrawals.
If you take a 401(k) distribution before age 59 1/2, you risk a 10% penalty. And even with $4 million to your name, that penalty is an expense you probably don't want to bear.
The good news, though, is that you may not have to sit tight and avoid touching your 401(k) until age 59 1/2. You may be able to get your money out penalty-free in 2025.
It's a loophole known as the rule of 55, and what it allows you to do is take penalty-free withdrawals from a 401(k) if you leave your job the calendar year you turn 55 or later.
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