If you leave the federal government at age 55 or older, you can withdraw from your TSP without fear of a penalty—as long as you retire immediately.
Understanding Rule 72(t)
These exceptions allow investors to withdraw funds from their retirement accounts before age 59½, as long as certain qualifications are met. To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs).
Under the terms of this rule, you can withdraw funds from your current job's 401(k) or 403(b) plan with no 10% tax penalty if you leave that job in or after the year you turn 55. (Qualified public safety workers can start even earlier, at 50.) It doesn't matter whether you were laid off, fired, or just quit.
The rule of 55 is an IRS provision that allows you to withdraw money from your 401(k) or other qualified retirement plan without the 10% early withdrawal penalty if you leave your job in or after the year you turn 55.
What is the rule of 55? The IRS rule of 55 recognizes you might leave or lose your job before you reach age 59½. If that happens, you might need to begin taking distributions from your 401(k). Unfortunately, there's usually a 10% penalty—on top of the taxes you owe—when you withdraw money early.
Rule of 55 disadvantages
For example, the money you withdraw from your 401(k) or 403(b) will be taxed as regular income, perhaps triggering other issues (e.g., depending on the amount you withdraw, you could end up in a higher tax bracket and thus owe more to Uncle Sam).
Default. (a) Entry . When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party's default.
Any Roth 401(k) CONTRIBUTIONS can be withdrawn tax-free under the Rule of 55, but any EARNINGS on your contributions will be taxable (treated as income) unless you are at least 59 1/2 and have held the account for at least 5 years.
If you're at least age 59½ and your Roth IRA has been open for at least five years, you can withdraw money tax- and penalty-free. See Roth IRA withdrawal rules.
Withdrawal Calculation: Under the 72(t) rule, individuals have three IRS-approved methods to calculate the amount of their withdrawals. Conversely under the Rule of 55, individuals can withdraw any amount they choose from their employer-sponsored plan without the need for complex calculations.
While rule 72(t) presents several advantages, it is not without its risks. Among the potential drawbacks are the possibility of depleting retirement savings early, being locked into the payment schedule and additional tax implications.
The rule of 55 is a loophole that allows for early withdrawals from workplace retirement accounts. You must be 55 or older in the year you leave your job (for any reason) to qualify for early withdrawals from a 401(k) or 403(b).
Required minimum distribution (RMD) changes
SECURE 2.0 increases the age you must begin taking RMDs from your TSP account. The start age for RMDs increased from 72 to 73 starting on January 1, 2023.
Internal Revenue Code section 72(t) allows penalty-free1 access to assets in IRAs and employer-sponsored retirement plans under certain conditions, such as account holder death or disability, first-time home purchases, and taking substantially equal periodic payments (SEPP).
No taxes are owed when receiving a qualified withdrawal. For Roth TSP money, qualified means the account must have been opened and funded for at least five years and for the earnings, the TSP participant must be 59½ or older (or disabled) to avoid the 10% IRS penalty.
The rule of 55 is an IRS provision that allows workers who leave their job for any reason to start taking penalty-free distributions from their current employer's retirement plan in or after the year they reach age 55.
Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.
Exemption. A white diamond sign on a signal post means that the driver is not required to contact the signaller because a telephone is not provided, but the presence of the train or shunting movement is indicated to the signaller by detection.
The rule of 55 can be used to plan early withdrawals from a 401(k) or 403(b), but it isn't the only option for avoiding the 10% penalty. You could also take money from a workplace retirement plan before age 59½ using substantially equal periodic payments (SEPPs).
Once the clerk enters a default in the court record, the defendant is no longer able to file a response or otherwise participate in the case. The plaintiff can also request a judgment entered in his or her favor, at the same time as the default, or later. This is known as requesting a default judgment.
The rule of 55 applies to you if: You leave your job in the calendar year that you will turn 55 or later (or the year you will turn 50 if you are a public safety worker such as a police officer or an air traffic controller). You can leave for any reason, including because you were fired, you were laid off, or you quit.
Rule 72t Fundamentals
This particular rule allows you to take substantially equal periodic payments (SEPPs) from an IRA, 401(k) or other qualified retirement plan without incurring the 10% early withdrawal penalty you would otherwise generally have to pay.
According to the rule of 55, you may be able to withdraw funds without penalty from a retirement account through your most recent employer in the calendar year you turn 55 (or after). Employers are not required to follow the rule of 55, and the rule of 55 does not exempt you from paying income tax on the withdrawals.