Rule of 55
An IRS exception letting you withdraw penalty-free from your most recent employer's 401(k) if you leave that job in or after the year you turn 55.
Normally, 401(k) withdrawals before 59½ carry a 10% early-withdrawal penalty on top of ordinary income tax. The Rule of 55 is an exception: if you separate from an employer — quit, get laid off, or retire — in or after the calendar year you turn 55, you can withdraw penalty-free from that employer's 401(k). Income tax still applies; only the penalty goes away.
The exception is narrow. It only covers the 401(k) at the job you just left, not accounts from earlier employers and not IRAs — rolling that 401(k) into an IRA forfeits the exception entirely. The plan itself also has to allow it; not every 401(k) permits partial or installment withdrawals, so it's worth confirming with the plan administrator before counting on it. A similar provision applies at age 50 for certain public safety employees.
Compared to a Roth conversion ladder, the Rule of 55 needs no years of advance setup — it's available the moment you separate from service at the right age — which makes it a natural fit for people retiring at 55 to 59 who didn't plan years ahead.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.