Bogdan Sheremeta | Nov 1, 2025

MOST PEOPLE THINK their retirement accounts are completely locked until age 59½ due to the 10% early withdrawal penalty, but that’s not really true. There are many ways to access your money earlier without the penalty, and knowing them can give you flexibility. Of course, you shouldn’t be touching your retirement accounts unless you’re ready to retire.

Here are some distributions that are not subject to the 10% penalty, per theIRS list:

• Birth or adoption (up to $5,000 per child)
• Series of substantially equal payments (72t)
• First-time homebuyer (up to $10,000, IRA only)
• Qualified higher education expenses (IRA only)
• Unreimbursed medical expenses over 7.5% of AGI
• Health insurance premiums while unemployed (IRA only)
• Emergency personal expense distribution (up to $1,000 per year)
• Up to $22,000 to qualified individuals who sustain an economic loss in a federally declared disaster

But what if you wanted to withdraw funds to pay for living expenses during early retirement?

This is where a Rule of 55 could come into play.

Rule of 55

You may be familiar with the series of substantially equal periodic payments (72t) exception that allows you to establish a withdrawal plan based on your life expectancy, interest rates, IRA/401k balance, and the method you choose to calculate.

The Rule of 55 is actually more flexible than a 72(t) plan and much simpler to execute.

Per the IRC, if the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit or defined contribution plan), the 10% penalty will not apply.

In simple terms, if you quit your job in the calendar year when you turn 55 or older, you can start withdrawing from your retirement plan. This exception only applies to qualified plans, like 401(k), 403(b) or 457(b). It does not apply to IRAs.

Here’s a quick planning opportunity if you may be using the Rule of 55:

Roll over all of your old 401(k), 403(b), or 457(b) plans into your current plan, because the rule only applies to your most recent qualified plan. Also, you could roll over your old IRAs into the current plan, but not every 401(k) plan accepts rollovers from IRAs, and processing can take time. You have to make sure the rollover is completed before you separate from your employer; otherwise, those funds won’t qualify for the Rule of 55 exception.

Note that as long as your separation from service (retirement, layoff, resignation, etc) happens in the same calendar year that you turn 55 (or later), the 10% early withdrawal penalty does not apply to withdrawals from that employer’s plan. For example, you could quit your job on 11/1/2025, turn 55 on 12/1/2025 and still withdraw money with the exceptions applied. The reason for separation does not matter.

However, if you quit your job at 52, you cannot start withdrawing at 55 without incurring the 10% penalty, since you separated from service before reaching age 55.

Qualified Public Safety Employees

If you are a qualified public safety employee, you can start withdrawing after the year in which you turn 50. The definition of qualified public safety employees includes:

• Any employee of a State who provides police protection, firefighting services, emergency medical services, or services as a corrections officer
• Federal law enforcement officers
• Federal customs and border protection officers
• Federal firefighters
• Air traffic controllers
• Nuclear materials couriers
• Members of the United States Capitol Police
• Members of the Supreme Court Police

Important note

While the Rule of 55 can be a powerful tool, your employer’s 401(k) plan must allow partial withdrawals for it to actually work as intended.

Some plans only permit a lump-sum distribution after separation from service. If that’s the case, you’d be forced to withdraw the entire balance at once, which could trigger a massive tax bill and ruin the strategy.

That’s why it’s important to check your plan’s withdrawal policy before you leave your job. Contact your HR department or plan administrator and ask whether partial, periodic withdrawals are allowed after separation.

If your plan doesn’t allow them, you may want to consider using a 72(t) plan strategy instead

.

Taxes

Keep in mind that these exceptions only waive the 10% early withdrawal penalty, not the income tax.

You’ll still owe ordinary income tax on any distribution from a pre-tax account, regardless if you use any of the exceptions. This is why it’s important to analyze whether a pre-tax or Roth account is best to contribute to during your working years, and to plan ahead.

If your plan does allow the partial withdrawals and you end up using this strategy, it could be a good way to lower your pre-tax balance to prevent future “tax hikes” due to RMDs, Social Security or pension.

In the end, it’s good to be aware of all your options so that you can plan ahead, minimize taxes and improve your liquidity options.

Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.

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