Hello, and welcome to another installment of the Highball Advisors Railroad Retirement whiteboard. I'm John McNamara from Highball Advisors, and today we're diving into a topic that resonates with many railroaders—those with 30 years of service contemplating retirement. I frequently receive calls from individuals in their early 50s, excited about reaching the 30-year mark at 53, 54, or 57, with the option to retire. However, there's a catch: while you can retire at this point, you can't commence your annuities until you reach 60. This is where strategic planning comes into play, particularly regarding the Rule of 55, which I'll elaborate on shortly.
The Rule of 55 essentially states that if you're 55 years or older and have separated from the railroad, you can tap into your 401(k) funds as a bridge to sustain you until your annuity kicks in at 60. However, careful planning is crucial before embarking on this path. Here are five key points to consider:
1. Withdrawal Limited to Employer-Specific 401(k): You can only withdraw from the 401(k) associated with the employer you are separating from. If you have multiple 401(k)s, the one tied to your departing employer is the sole source.
2. Timing of Job Departure: To utilize the Rule of 55, you must leave your job in the calendar year you turn 55 or later. Departing earlier eliminates this option.
3. Funds Must Remain in Employer's 401(k): Even after leaving the railroad, your 401(k) balance must stay within the former employer's plan while withdrawals are made. This allows you to leverage their investment options.
4. Withdrawal Despite New Employment: Surprisingly, you can withdraw from your 401(k) even if you secure another job. The key is to utilize the funds from the previous employer's 401(k) plan.
5. Public Safety Employees' Exception: Public safety employees enjoy an extra five years, enabling them to implement the Rule of 55 at age 50. While this might not directly apply, it's an intriguing aspect to explore.
If delving into the Rule of 55 intrigues you, consider scheduling a Railroad Retirement meeting for personalized guidance, especially if you're approaching retirement. Click the subscriber link to stay updated on our latest videos, and don't forget to hit the notification bell. Until next time, stay safe, stay on track, and take care. Goodbye, everyone.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.