The Misunderstood "Rule of 55" for Early Railroad Retirement

Transcript:

Thinking of leaving the railroad using the rule of 55? You really need to watch this video. 

    Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about railroaders that are thinking of leaving around 55 and say, "Hey, I'm going to use this rule of 55, the separation of service rules, where I can access my 401k. I think I've done a couple videos on that, so you could check that out. But what I thought I'd do would go a little more in depth, understand the rules and risks around the rule of 55. Okay. 

    Once again, the rule of 55, so if a railroader separates from the railroad has to be 55 or older, very, very important, hence the rule of 55. So the first thing you want to do is avoid the timing mistakes, because if you don't, it's a 10% penalty, if you don't do that. You might have a situation where, hey, I'm 53, I'm going to leave the railroad, but I'm not going to touch my 401k till I'm 55, 56. Rule of 55 applies, right? Wrong. Wrong. Got to separate at 55 and above. All right? So even though you don't touch the funds till 55 in that scenario that I said, doesn't matter. 10% penalty applies. So you have to leave at 55 and over. That's the separation of service, so very, very important rule there. All right? And that's already been challenged in court. 

    Another one is determine the eligible accounts that you can use for the rule of 55. It's the 401k only. Not the IRAs or SEPs IRA or simple IRAs. 401ks only, very, very important. Okay. And then remember this is a big one here. Only available to the company that you're leaving. So if you've done five years at, let's say a railroad, and that's your latest 401k, well, you can only access that 401k that has the five years in it. So if your previous 401k is sitting at the old company or maybe you rolled it over to an IRA or something like that, you can't put that into the rule of 55. All right. So, very, very important. Once again, that 10% penalty applies. 

    So what you want to be thinking about doing there is think of it, oh, I think I'm going to retire, closing at 55. Make sure that you've taken your old 401ks and rolled them into your new company that you're going to be retiring from. Then you can do the separation of service on that bigger amount. So that's a very good strategy from there. I just wanted to share some of these ideas for those railroaders. You got your 30 years, might be at 55 or later, say, okay, I'm going to leave, got to start building that bridge to railroad retirement. Rule of 55 is a great way to do it, but we don't want to bring that 10% penalty into play. 

    So, feel free to reach out to me. If you want to go through my boarding for railroad retirement process, I'll go through the rule of 55 information with you and help build that bridge to early railroad retirement. Please click on the Subscribe button for the YouTube channel. Channel's growing really well. Click on Notification, get the latest whiteboard. Until next time, everyone, please stay safe, stay on track and take care. So long, everybody. Bye.

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