Rule of 55 Explained: 401(k), TSP and Calculator (2026)

Withdrawals from a 401(k) before age 59½ normally cost a 10% additional tax on top of income tax. The "rule of 55" is the exception for people who leave their job: if you separate from service in or after the calendar year you turn 55, withdrawals from that employer's plan are free of the 10% tax. It comes from section 72(t)(2)(A)(v) of the tax code, and it has traps: it does not cover IRAs, and leaving one year too early forfeits it. The calculator below checks your dates and estimates the tax on a 2026 withdrawal.

Table of Contents

Rule of 55 Calculator

Enter your date of birth, the date you left (or plan to leave) the employer whose plan holds the money, and when you want to withdraw. The calculator tells you whether the 10% tax applies and estimates the 2026 federal income tax on the withdrawal, stacked on your other income.

The Short Answer

What it does: removes the 10% additional tax on early distributions. Regular income tax on pre-tax money still applies.
Who qualifies: employees who separate from service in or after the calendar year they turn 55.
Which money: the 401(k), 403(b) or other qualified plan of the employer you left, including the TSP for federal workers.
Not covered: IRAs, including a 401(k) you roll into an IRA.
Public safety employees and firefighters: age 50, or 25 years of service under the plan, whichever comes first.

It Is the Year You Turn 55, Not the Birthday

The statute says "after attainment of age 55", but the IRS applies it by calendar year: you qualify if you separate from service "in or after the year" you reach 55 (IRS Publication 575; Form 5329 instructions, exception 01). The IRS model notice that plans give departing employees says the same: payments after you separate "if you are at least age 55 in the year of the separation" (Notice 2026-13).

Born	Leave the job	10% tax on withdrawals before 59½?
June 15, 1971	March 2026, age 54	No: 2026 is the year you turn 55
June 15, 1971	December 2025, age 54	Yes: 2025 is a year too early
June 15, 1971	Left at 50, withdraw at 56	Yes: the separation, not the withdrawal, must be in the 55 year

Applying IRS Publication 575. Its own example: George left his employer at 49 and took a distribution in the year he turned 55; he did not qualify because he separated before that year.

Timing a retirement or layoff package for January instead of December can therefore be worth 10% of everything you withdraw before 59½.

Which Accounts Qualify

Account	Rule of 55?	Notes
401(k), 403(b), profit-sharing, pension	Yes	The plan of the employer you separated from
Thrift Savings Plan (TSP)	Yes	Federal employees; age 50 or 25 years for public safety (below)
Governmental 457(b)	Not needed	No 10% tax at any age, except on money rolled in from another plan or an IRA
Traditional IRA, SEP-IRA, SIMPLE IRA	No	The separation-from-service exception does not apply to IRAs
Roth 401(k)	Yes, for the 10% tax	If the payment is not a qualified Roth distribution, its earnings are still subject to income tax (Notice 2026-13)

Sources: IRS "Retirement topics: exceptions to tax on early distributions"; Form 5329 instructions (2025); IRC section 72(t)(9) for governmental 457(b) plans.

Money left in a plan from an earlier job you quit before the year you turned 55 does not qualify, as Publication 575's George example shows. Some people move old 401(k) balances into their current employer's plan before they leave; whether a plan accepts the money, and how it treats it, is up to the plan, so ask the administrator before you count on it.

Public Safety Workers: Age 50 or 25 Years

For qualified public safety employees in a governmental plan, and for firefighters in any employer plan, the law substitutes "age 50 or 25 years of service under the plan, whichever is earlier" for age 55 (IRC section 72(t)(10)). The 25-year option was added by SECURE 2.0 for distributions after December 29, 2022.

State and local: police, firefighters, emergency medical services, corrections officers and forensic security employees.
Federal: law enforcement officers, customs and border protection officers, firefighters, air traffic controllers, nuclear materials couriers, Capitol Police, Supreme Court Police and Diplomatic Security special agents.
Private-sector firefighters in a 401(k), 403(b) or other qualified plan.

TSP detail: your agency must send the TSP a "P" employment code when you separate. Without it, your Form 1099-R will not show the exemption, and you claim it yourself on Form 5329 (TSP Bulletin 23-3).

The IRA Rollover Trap

Rolling a 401(k) into an IRA when you leave is common advice, and for someone who qualifies for the rule of 55 it can be an expensive mistake. Once the money is in an IRA, the separation-from-service exception is gone, and withdrawals before 59½ owe the 10% tax unless another exception applies (Notice 2026-13).

If you might need the money before 59½, leave enough in the employer plan to cover those years and roll over only the rest. You can still move the remainder to an IRA after you turn 59½.

Taxes Still Apply: Withholding and Brackets

The rule of 55 removes the 10% tax only. Pre-tax withdrawals are ordinary income in the year you take them.

20% withholding: a plan must withhold 20% of any payment eligible for rollover that is not rolled over directly (IRC section 3405(c); Notice 2026-13). That may be more or less than your actual tax.
Bracket stacking: the withdrawal sits on top of your other income for the year, including salary before you left and severance. Single, $60,000 of other income and a $40,000 withdrawal in 2026: about $8,150 of federal income tax, with $8,000 withheld. If the 10% tax applied, add $4,000.
Spread it out: the year after you retire often has less income. The same $50,000 withdrawn by a married couple with no other income costs about $1,780 in 2026 federal tax, while $10,000 is withheld; the difference comes back when they file.

Our calculations with the 2026 brackets and standard deduction (Rev. Proc. 2025-32). State income tax not included.

Taking several years of withdrawals in a low-income stretch can also open room for Roth conversions before Social Security and required minimum distributions start.

How to Use the Rule of 55

Check the separation year. Leave in or after the year you turn 55 (50 for public safety).
Keep the money in the plan. Do not roll the part you need into an IRA.
Read the plan's withdrawal options. Each plan's rules decide whether you can take partial withdrawals or only a lump sum or installments. Ask the administrator.
Plan the tax. Decide how much to withdraw each year, and whether the 20% withholding is enough.
Check the Form 1099-R. Box 7 should show code 2, "early distribution, exception applies". The IRS tells plans to use code 2 for this case only when they know it applies. If yours shows code 1, file Form 5329 and enter exception number 01 (Form 1099-R and Form 5329 instructions).

If You Do Not Qualify

Other exceptions to the 10% tax exist. The IRS lists them by account type; among them:

Substantially equal periodic payments (SEPP, often called "72(t) payments"): a fixed series figured from your life expectancy, available from IRAs and, after separation, from plans. Change the series before the later of five years or age 59½ and the 10% tax comes back on all earlier payments, plus interest (IRC section 72(t)(4)).
Total and permanent disability, terminal illness, or death.
Unreimbursed medical expenses above 7.5% of adjusted gross income.
An IRS levy, qualified military reservist distributions, and others on the IRS list.

Each exception has its own conditions; read the IRS table before relying on one.

Sources & Methodology

Internal Revenue Code section 72(t) (Cornell LII): (2)(A)(v) separation from service after 55, (4) SEPP recapture, (9) governmental 457(b) plans, (10) public safety employees and firefighters; section 3405(c) 20% withholding.
IRS Publication 575 (2025): "in or after the year you reached age 55" and the George example.
IRS, "Retirement topics: exceptions to tax on early distributions": the table of exceptions by account type, governmental 457(b) plans, the TSP.
IRS Notice 2026-13: model rollover notice (age 55 in the year of separation, not for IRAs, 20% withholding).
Form 5329 instructions (exception 01) and Form 1099-R instructions (code 2).
TSP Bulletin 23-3 (June 16, 2023): SECURE 2.0 section 329, the 25-year rule and the "P" code.

Method notes. The calculator applies the calendar-year test to your separation date and checks age 59½ on the withdrawal date. Income tax is the 2026 federal tax on the withdrawal stacked on your other taxable income, with the standard deduction, as if all of it is pre-tax money; Roth basis, state tax and other exceptions are not modelled. Withholding is 20% for employer plans and the 10% default for IRAs (you can choose a different IRA rate).

This article is educational and is not tax advice. Wealthy Pot is not affiliated with the IRS or the Thrift Savings Plan. Rules were checked against the Internal Revenue Code and IRS publications on 2026-10-13.

FAQ

Can I use the rule of 55 if I was fired or laid off?
Yes. The law requires a separation from service in or after the year you turn 55 and sets no condition on why you left.

Does the rule of 55 apply to IRAs?
No. It applies only to employer plans such as a 401(k), 403(b) or the TSP. Money rolled into an IRA loses it.

I turn 55 in December. Can I retire in January of that year?
Yes. The IRS test is the calendar year: separating any time in the year you turn 55 counts.

Do I still pay income tax?
Yes. Pre-tax withdrawals are taxed as ordinary income. Only the 10% additional tax is waived.

Does it apply to my old 401(k) from a previous job?
Not if you left that job before the year you turned 55. IRS Publication 575's example of an employee who left at 49 and withdrew at 55 does not qualify.

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"Rule of 55: Withdraw From Your 401(k) at 55 Without the 10% Penalty." Wealthy Pot, 2026. https://wealthypot.com/rule-of-55/