The rule of 55: penalty-free 401(k) withdrawals after you leave a job

Key points

• The rule of 55 is an exception to the 10% additional tax on early withdrawals, written in section 72(t)(2)(A)(v) of the Internal Revenue Code. It covers money paid to you from an employer’s plan after you leave that employer, if you leave in or after the calendar year you turn 55.
• The year counts, not the birthday. Leave on any day of the year you turn 55, or later, and it can apply. Leave in an earlier year and it never applies to that plan.
• It covers only the plan of the employer you leave: a 401(k), 403(b) or other qualified plan. It does not cover IRAs, so money you roll into an IRA loses it.
• Qualified public safety employees in a governmental plan, and private-sector firefighters, get it from 50, or after 25 years of service under the plan if that comes first. It removes the 10% only: the withdrawal is still taxed as income, and the plan withholds 20% of a payment made to you.

A withdrawal from a 401(k) before 59 and a half usually adds a 10% additional tax on top of income tax. The rule of 55 is one of the exceptions, and the one most tied to leaving a job. Our guide to 401(k) withdrawals covers every way money comes out of a plan. This guide covers this one rule: the exact wording of the law, the calendar-year test, which plans it covers, the public safety version, what breaks it and how plan rules limit it, with worked examples you can rerun in our 401(k) withdrawal calculator.

These are federal rules. We checked every rule and figure against the Internal Revenue Code, IRS publications, forms and instructions on October 27, 2026. They are listed at the end. State income tax is not covered.

What is the rule of 55?

Section 72(t)(1) of the tax code adds a tax equal to 10 percent of the taxable part of an early distribution from a qualified retirement plan. Section 72(t)(2)(A) then lists the distributions that tax does not apply to. Clause (v) is the rule of 55, in full:

> “made to an employee after separation from service after attainment of age 55,”

The clause sets two conditions: you have separated from service with the employer, and the money is paid after that. It does not ask why you left, so a layoff, a resignation and a retirement are treated alike.

The IRS reads “after attainment of age 55” as a calendar-year test. Its 401(k) resource guide says the exception covers a distribution “made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55”. IRS Publication 575 puts it the same way: “you must have separated from service in or after the year in which you reach age 55”. The reading goes back to IRS Notice 87-13, Q&A 20, which an IRS Chief Counsel information letter quotes: a payment qualifies if it comes after you leave “the employer maintaining the plan” and the separation “occurred during or after the calendar year in which the employee attained age 55”.

“Rule of 55” is a nickname. The IRS table of exceptions lists it as “Separation from service”.

When does the rule of 55 start? The calendar-year test

Two dates matter: the day you leave the employer and the day the plan pays you.

• You leave in or after the calendar year you turn 55. If your 55th birthday is in November 2026, leaving on any day of 2026 counts, January included.
• The payment comes after you leave. On the IRS wording, it does not have to wait for the birthday itself.
• Leaving earlier does not work, even if you wait to withdraw. IRS Publication 575 gives the example of an employee who left at 49 and took a distribution in the year he reached 55. The exception did not apply, because he separated before the year he reached 55.

You turn 55 in	You leave the employer	Rule of 55 for that plan
2026	January 15, 2026	Yes, for payments after you leave
2026	December 20, 2025	No: you left in the year you turned 54
2026	June 30, 2027	Yes
2027	November 30, 2026	No: you left in the year you turned 54

Once it applies, it keeps applying to that plan’s payments. The clause has no end date, and at 59 and a half the age exception in section 72(t)(2)(A)(i) covers every withdrawal anyway. Taking a new job later does not undo it either: the only conditions are the separation from that employer and its year. The IRS pages we checked do not cover a return to the same employer, so the plan is the place to ask about that case.

Which plans does the rule of 55 cover?

The 10% tax applies to a “qualified retirement plan (as defined in section 4974(c))”. That definition takes in 401(a) plans (401(k), profit-sharing and pension plans), 403(a) annuity plans, 403(b) contracts and IRAs. Section 72(t)(3)(A) then takes IRAs out of the rule of 55: subparagraph (A)(v) “shall not apply to distributions from an individual retirement plan.”

Account	Rule of 55?
401(k), profit-sharing or pension plan of the employer you leave	Yes
403(b) of the employer you leave	Yes
Governmental 457(b) plan	Not needed: no 10% additional tax, except on money rolled in from another type of plan or an IRA
Plan of an employer you left in an earlier year	Only if you left that employer in or after the year you turned 55
Traditional, rollover, SEP or SIMPLE IRA	No

Each plan is tested against your separation from the employer that maintains it. A 401(k) from a job you left at 50 stays outside the rule even after you leave a later job at 56.

The Code’s wording looks at the plan that pays and your separation from that employer. It makes no exception for money that was rolled into that plan from an earlier job before you left, and the IRS pages we checked do not address that case directly. If part of your balance came from an earlier job, the plan administrator can say how it will report a payment of that money.

Roth 401(k) money follows the same test. The 10% applies only to the part of a withdrawal that is taxable, which for a designated Roth account is the earnings in a withdrawal that is not a qualified distribution. Our Roth 401(k) withdrawal guide covers those rules, and the 403(b) withdrawal guide covers 403(b) plans.

The rule of 55 at 50 for public safety employees

Section 72(t)(10)(A) replaces “age 55” with “age 50 or 25 years of service under the plan, whichever is earlier” in two cases:

• qualified public safety employees, for distributions from a governmental plan; and
• employees who provide firefighting services, for distributions from a private employer’s qualified plan, 403(a) annuity plan or 403(b) plan.

The Code’s list of qualified public safety employees covers state and local police, firefighters, emergency medical services workers, corrections officers and forensic security employees. On the federal side it covers law enforcement officers, customs and border protection officers, firefighters, air traffic controllers, nuclear materials couriers, the Capitol Police, the Supreme Court Police and Diplomatic Security special agents. The IRS says the exemption covers governmental defined benefit and defined contribution plans, “such as the TSP”.

The 25-years-of-service test and the private-sector firefighter rule came from the SECURE 2.0 Act and apply to distributions made after December 29, 2022. The calendar-year logic is the same: the 2026 Form 1099-R instructions describe a public safety employee’s distribution “after separation from service, in or after the year the employee has reached age 50 or 25 years of service under the plan, whichever is earlier”.

Our calculator’s public safety box uses age 50. With 25 years of service before 50, its help text says to tick “Another IRS exception” instead, which gives the same arithmetic.

What breaks the rule of 55?

• Rolling the money into an IRA. Once it sits in an IRA, section 72(t)(3)(A) applies and the rule of 55 is gone for that money. IRA withdrawals then wait for 59 and a half or another IRA exception. Example 2 below shows the cost.
• Leaving before the year you turn 55. The plan’s money then waits for 59 and a half, a 72(t) series of equal payments or another exception.
• Taking it from the wrong plan. An old employer’s plan counts only if you left that employer in or after the year you turned 55.
• Moving it into a new employer’s plan. That money is then paid by the new plan, so the rule of 55 for it depends on when you leave the new employer.

None of these touch the income tax, which is due either way. Our guide to the 10% early withdrawal penalty lists the other exceptions.

Can you take partial withdrawals under the rule of 55?

The tax rule covers any amount. The plan decides what you can actually take, and when. In the IRS’s words, “The plan is not required to allow distributions for every possible distributable event.” A plan “may pay benefits in a single lump-sum payment as well as offer other options, including payments over a set period of time (such as 5 or 10 years)”. Your summary plan description lists the options.

• If the plan allows partial withdrawals after you leave, you can take what you need each year. The rest stays in the plan, still covered.
• If the plan pays only the whole balance, the plan must let you send part of the payout straight to an IRA or another plan in a direct rollover and take the rest in cash (26 CFR 1.401(a)(31)-1, Q&A-9). The plan may require the rolled part to be at least a minimum amount, which the regulation caps at $500 unless the IRS publishes a higher figure. The cash part keeps the rule of 55. The part rolled to an IRA loses it.
• If your vested balance is over $7,000, the plan cannot pay it out without your consent (section 411(a)(11)(A)), so you can usually leave it in the plan. A plan may pay out a balance of $7,000 or less, and if it is over $1,000 and you make no choice, the plan sends it to an IRA in your name (section 401(a)(31)(B)).

How rule of 55 withdrawals are taxed and reported

The rule removes the 10% only. Pre-tax money is still taxed as ordinary income in the year it is paid. Our guide to taxes on 401(k) withdrawals covers the income tax side.

Withholding. A plan payout that could have been rolled over has 20% federal tax withheld when it is paid to you (section 3405(c)(1)). A direct rollover has none. Withholding is a prepayment: the real tax is settled on your return.

Form 1099-R. The plan reports the payout in box 7a (box 7 before 2026) with code 2, “Early distribution, exception applies”, if it knows the separation exception applies. If the box shows code 1 instead and you qualify, you file Form 5329 and enter the amount on line 2 with exception number 01. Those numbers are from the 2025 Form 5329 instructions; check them for your tax year.

Rule of 55 examples with the numbers

All four examples assume a single filer, the 2026 federal brackets and standard deduction, only pre-tax money and no state tax. The 2027 brackets had not been published on October 27, 2026. Each link opens the calculator with the inputs filled in.

Example 1: leaving in the year you turn 55. A single filer turns 55 in November 2026 and leaves the job in March 2026, with $20,000 of wages for the year. In 2026 the filer takes $40,000 from that employer’s 401(k). The withdrawal adds $4,630 of federal income tax: taxable income rises from $3,900 to $43,900, all inside the 10% and 12% brackets. The 10% additional tax is $0, so the filer keeps $35,370. The plan withholds $8,000, so $32,000 arrives, and about $3,370 comes back at filing if other withholding covers the tax on the wages. Run example 1.

Example 2: the same money rolled to an IRA first. The filer moves the 401(k) to an IRA, then takes the same $40,000 from the IRA. The income tax is the same $4,630, but now the 10% applies: $4,000 more. The filer keeps $31,370. The IRA withholds 10% by default ($4,000), so about $4,630 is still due at filing. Run example 2.

Example 3: leaving a year too early. The filer left in December 2025, the year of turning 54, and takes the $40,000 from the plan in 2026. The rule does not apply: the 10% is $4,000 and the filer keeps $31,370. After the $8,000 withheld, about $630 is still due at filing. In the calculator, the box for leaving in or after the year you turn 55 stays unticked. Run example 3.

Example 4: a public safety employee at 50. A city police officer turns 50 in 2026, leaves in 2026 with $25,000 of wages for the year and takes $30,000 from the city’s governmental 401(a) plan. Income tax added: $3,530. The 10% is $0, so the officer keeps $26,470. Run example 4: with the public safety box ticked, the calculator reads the box for leaving the employer from 50. An officer who reaches 25 years of service under the plan at 47 and leaves that year gets the same result. Run the 25-year version.

Example	10% additional tax	Income tax added	Kept
1. Left in the year of turning 55, paid by the plan	$0	$4,630	$35,370
2. Same $40,000, rolled to an IRA first	$4,000	$4,630	$31,370
3. Left in the year of turning 54	$4,000	$4,630	$31,370
4. Public safety, left in the year of turning 50 ($30,000)	$0	$3,530	$26,470

Rule of 55 or 72(t) payments?

Both avoid the 10% before 59 and a half, but they work differently. A 72(t) series of substantially equal periodic payments works from an IRA or a plan, at any age, but payments from a plan must begin after you leave the employer. The series has to continue unchanged for 5 years or until 59 and a half, whichever is later; change it early and the 10% comes back on the earlier payments, plus interest. The rule of 55 has no schedule: within the plan’s own rules you take what you want, when you want. The 72(t) guide has the methods and limits, and our guide to 401(k) withdrawal age puts all the ages side by side.

If your job is ending now, our guide to your 401(k) after a layoff walks through every choice for the account, including loans and rollovers.

About this guide

Written by the Diversify Guy editorial desk. Diversify Guy is a pen name. It is the byline of our editorial team, not a single individual. We do not publish personal trading records or claim to be your adviser. We tell you where every figure came from so you can check it yourself. How we work and how we get paid.

This guide explains federal rules. It is not personalized tax or investment advice.

Sources and check dates

All sources were fetched and checked on October 27, 2026.

• Internal Revenue Code section 72(t), including (t)(1), (t)(2)(A)(i) and (v), (t)(3)(A), (t)(4) and (t)(10), with the statutory notes on the 2022 amendments, U.S. Code 2024 edition: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partII-sec72.htm
• Section 72, current text, Legal Information Institute: https://www.law.cornell.edu/uscode/text/26/72
• Internal Revenue Code sections 401(a)(31), 402(c)(8)(B), 411(a)(11), 3405(c) and 4974(c), U.S. Code 2024 edition: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapD-partI-subpartA-sec401.htm and https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapD-partI-subpartA-sec402.htm and https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapD-partI-subpartB-sec411.htm and https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleC-chap24-sec3405.htm and https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleD-chap43-sec4974.htm
• IRS Office of Chief Counsel, information letter INFO 2004-0115 (quoting Notice 87-13, Q&A 20): https://www.irs.gov/pub/irs-wd/04-0115.pdf
• IRS, 401(k) resource guide, plan participants, general distribution rules, page last updated January 27, 2026: https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules
• IRS, Retirement topics: exceptions to tax on early distributions, page last updated December 11, 2025: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
• IRS, When can a retirement plan distribute benefits?, page last updated June 28, 2026: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits
• IRS, Rollovers of retirement plan and IRA distributions, page last updated May 31, 2026: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
• IRS Publication 575 (2025), Pension and Annuity Income: https://www.irs.gov/publications/p575
• IRS Tax Topic 558, Additional tax on early distributions from retirement plans other than IRAs, page last updated September 24, 2026: https://www.irs.gov/taxtopics/tc558
• 2025 Instructions for Form 5329: https://www.irs.gov/pub/irs-pdf/i5329.pdf
• 2026 Instructions for Forms 1099-R and 5498: https://www.irs.gov/pub/irs-pdf/i1099r.pdf
• 26 CFR 1.401(a)(31)-1, Q&A-9 (direct rollover of part of a distribution), eCFR, title 26 up to date as of October 26, 2026: https://www.ecfr.gov/current/title-26/section-1.401(a)(31)-1
• Rev. Proc. 2025-32 (2026 tax brackets and standard deduction): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
• IRS, Inflation-adjusted tax items by tax year (checked for 2027 figures): https://www.irs.gov/newsroom/inflation-adjusted-tax-items-by-tax-year