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If I retire after 55, can I withdraw from my 401(k) without a penalty tax?

Question:

I read somewhere that there is an exception to early withdrawal on a 401(k) account if you are over 55 and retired. Is this true -- and how do I find out more about doing this?

Answer:

You read right.

If you retire after age 55 and take a distribution of some or all of your 401(k) plan, the amount you take will be subject to income tax. But you won't have to pay the early distribution tax.

The age-55 rule applies only to qualified employer plans (like 401(k) plans). And, being a legal rule, it comes with a number of flummoxing exceptions. For example, if you took a distribution and rolled it over into an IRA first, you're stuck and must wait until you are 59 1/2 -- unless some other exception applies in your specific plan.

And if you were to retire and leave your money in your former employer's 401(k), the terms of the employer plan might preempt the federal rule. For example, the plan might require you to wait until you reach a specific age -- 62 or 65 are common cutoffs. Or some plans give an option to take a distribution once a year.

To find out the exact rules, check with your plan administrator.