Retiree Tax Tip: The Age 55 Exception for 401(k)s

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How to avoid the 10% early-withdrawal penalty when you tap your former employer’s 401(k).

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Generally, taxpayers can’t tap their retirement accounts penalty free before age 59 1/2. But like many rules, this one has an exception.

SEE ALSO: The Most Overlooked Tax Breaks for Retirees

If you separate from service at the age of 55 or older, you can tap your former employer’s 401(k) free of the 10% early-withdrawal penalty. You will still owe taxes on the money if it’s withdrawn from a traditional 401(k). If you take out $20,000 at a 22% tax rate, for example, you’ll owe $4,400 in ordinary-income tax, but you

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