I left company employment in July 2012 and turned 55 years old in October of that same year. Am I correct in my understanding that if I withdraw my 403(b) account I will, of course, have to pay income tax on the money, but I will NOT be charged the 10% early withdrawal penalty? I never rolled the account over when I left employment, and it remains in the original accounts.

  • Yes. You understand correctly. Aug 15, 2015 at 1:31
  • @JoeTaxpayer can you explain further? How old does she need to be to start withdrawing funds from the 403(b)?
    – Ben Miller
    Aug 15, 2015 at 20:03
  • 55 means no penalty. So it was just a "yes". Not sure what else to add. One only need turn 55 in the year of separation to avoid penalty. Aug 15, 2015 at 21:30

2 Answers 2


Here is an IRS citation to support my comment above -

Exceptions. The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:

Made to a beneficiary (or to the estate of the participant) on or after the death of the participant,

Made because the participant has a qualifying disability,

Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.),

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,

Made to an alternate payee under a qualified domestic relations order (QDRO),

Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions),

Timely made to reduce excess contributions,

Timely made to reduce excess employee or matching employer contributions,

Timely made to reduce excess elective deferrals, or

Made because of an IRS levy on the plan.

Made on account of certain disasters for which IRS relief has been granted.


Yes you can do the withdraw if you turned 55 during the year you separated from service.


Leaving Your Job On or After Age 55

The age 59½ distribution rule says any 401k participant may begin to withdraw money from his or her plan after reaching the age of 59½ without having to pay a 10 percent early withdrawal penalty.

There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without penalty from their 401k (the "rule of 55"). There are three key points early retirees need to know.

First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575.

Second, if you still have money in the plan of a former employer and assuming you weren't at least age 55 when you left that employer, you'll have to wait until age 59½ to start taking withdrawals without penalty. Better yet, get any old 401k's rolled into your current 401k before you retire from your current job so that you will have access to these funds penalty free.

Third, this exception only applies to funds withdrawn from a 401k. IRAs operate until different rules, so if you retire and roll money into an IRA from your 401k before age 59½, you will lose this exception on those dollars.

  • 1
    including a quote from a link makes the answer better. It also protects against link rot. Aug 18, 2015 at 13:15

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .