What is the Rule of 55? The Rule of 55 is a US provision that allows penalty-free withdrawals from your current employer’s 401(k), but not prior employers’ plans or IRAs, if you leave that employer in or after the calendar year you turn 55. It is a simple, flexible alternative to SEPP and Roth Ladder strategies for workers retiring in their mid-50s.
Worked example: you turn 55 in March 2025 and leave your employer in June. Your current 401(k) holds $600,000. You can withdraw any amount, any time, from that 401(k), penalty-free, while leaving the rest invested. If you roll the balance to an IRA, you lose the Rule of 55 protection. So if you plan to use it, do not roll over until after 59½.
Key limit: the Rule of 55 only applies to the 401(k) tied to the employer you separated from at or after 55. It does not apply to IRAs, HSAs, or older 401(k)s at prior employers. For FIRE practitioners targeting a retirement age of 55–59, it is the simplest and most flexible bridge strategy available.