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Can I take money out before 59½ without the 10% penalty?
Check whether the Rule of 55 lets you tap your workplace plan without the 10% early-withdrawal tax, and calculate penalty-free 72(t) payments from an IRA.
Yearfold is a financial-education tool. It is not a registered investment adviser and does not provide personalized investment, tax, or legal advice. Results are probabilistic projections based on historical data and stated assumptions; they are not guarantees. Methodology
By Mindaugas Laucius · Last reviewed October 21, 2026
Leaving in 2026, the year you turn 55
Qualifies
Withdrawals from this employer's plan avoid the 10% additional tax.
- Covers only the 401(k) or 403(b) of the employer you leave, not IRAs or plans from earlier jobs.
- Income tax still applies; only the 10% additional tax is waived.
- Everything becomes penalty-free once you reach 59½ (in 2031 at the latest).
Don’t roll the plan into an IRA first. Once the money is in an IRA, the Rule of 55 no longer applies to it.
RMD method, first year
$13,812
$500,000 ÷ 36.2; recalculated every year
Fixed amortization, every year
$30,156
Over 36.2 years at 5.00%
Life expectancy from the IRS Single Life Table. More early-retirement options are in how to retire at 55 without the penalty.
How this works
Withdrawals from retirement accounts before 59½ usually owe a 10% additional tax on top of income tax. Two well-known exceptions help early retirees. The Rule of 55 applies when you leave your employer in or after the calendar year you turn 55: from then on, withdrawals from that employer's 401(k) or 403(b) escape the 10% tax. Qualified public-safety workers in government plans get the same treatment from 50, or after 25 years of service.
The rule covers only the plan of the employer you just left, not IRAs and not plans from earlier jobs. Rolling the 401(k) into an IRA first gives up the exception, so many early retirees keep the money in the plan until 59½.
The second route is a 72(t) schedule of substantially equal periodic payments (SEPP), which works on IRAs at any age. IRS Notice 2022-6 allows three methods; we calculate two. The RMD method divides the balance by your Single Life Table life expectancy and recalculates every year. The fixed amortization method spreads the balance over that same life expectancy at an interest rate of up to 5%, or 120% of the federal mid-term rate if that is higher, and gives a level payment. The third, fixed annuitization, uses an annuity factor and isn't computed here.
A 72(t) schedule must continue for five years or until 59½, whichever is later. Change it early (other than a one-time switch to the RMD method) and the 10% tax is applied retroactively to every payment, plus interest.
Worked example: Age 50, $500,000 IRA, 5% interest rate
- Single Life Table life expectancy at 50: 36.2 years.
- RMD method: $500,000 ÷ 36.2 = $13,812 in the first year.
- Amortization: $500,000 × 0.05 ÷ (1 − 1.05^−36.2) = $30,156 a year, every year.
- Length: 59½ comes later than age 55, so payments must continue for 9.5 years.
The schedule could pay $13,812 (recalculated yearly) or a level $30,156 a year without the 10% additional tax, as long as it continues unchanged until 59½.
The full method behind every Yearfold number is on the methodology page.
Sources
- IRS — exceptions to the tax on early distributions
- IRS Notice 2022-6 — substantially equal periodic payments
- IRS Publication 590-B (life expectancy tables)
- IRS — applicable federal rates
Rules verified against these sources on October 21, 2026.
Questions
Does the Rule of 55 apply if I retire in the year I turn 55, before my birthday?
Yes. The test is the calendar year: leaving any time in the year you turn 55, even in January with a December birthday, qualifies for that employer's plan.
Can I use the Rule of 55 and then take a new job?
Yes. Once you've separated in or after the qualifying year, later employment doesn't undo the exception for that plan. It still applies only to the plan of the employer you left.
What interest rate can I use for 72(t)?
Any rate up to the greater of 5% or 120% of the federal mid-term rate for either of the two months before your first payment. The IRS publishes those rates monthly on its applicable federal rates page; enter the 120% figure here if it is above 5%.
Can I stop or change 72(t) payments if I need more money?
Changing the schedule before it ends triggers the 10% additional tax on all prior payments, plus interest. The one exception is a one-time switch from either fixed method to the RMD method, which usually lowers the payment.
Are there other penalty-free options before 59½?
Yes, including a Roth conversion ladder (contributions and converted amounts after five years), certain medical costs and disability. Our guide to retiring at 55 compares them.
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