Distributions & Withdrawals FAQ

What is the Rule of 55? The Rule of 55 is an IRS provision that allows penalty-free withdrawals from your employer-sponsored retirement plan (such as a 401(k) or 403(b)) if you leave your job in the calendar year you turn 55 or later. Withdrawals must come from the plan of the employer you most recently left, not from an IRA or a previous employer's plan. You will still owe regular income taxes, but the 10% early withdrawal penalty is waived. This rule does not apply to IRAs. For certain public safety employees, the age threshold is 50 instead of 55.

Why can't I withdraw or roll over my account while I'm still employed? Your retirement plan is an employer-offered benefit for active employees. While actively employed, your account remains in the plan. Once you separate from your employer, you gain access to your funds for withdrawal or rollover.

If I have both pre-tax and Roth sources and want to take a partial distribution, which source does it come from? You will be asked to specify which source (pre-tax or Roth) you would like the distribution to come from.

What happens to the 20% tax withholding on my distribution? The 20% withholding is paid to the Department of Revenue and Taxation immediately. It is not held in a separate account.

If I have both Roth and pre-tax funds during a plan termination, how do I roll over? Roth funds roll over to a Roth IRA and pre-tax funds roll over to a traditional IRA.