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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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I am 57 years old I want to use the 55 rule to take money

Customer Question

I am 57 years old I want to use the 55 rule to take money out of my 401k. I understand you have to separate from the company. How long do you need to be separated before you can be rehired part time with no benefits. My plan also has stock option which only buy sells once a year will leaving money in that stock till the buy next feb. affect the removal of funds
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

The term “separation from service” is not defined by either the Code or regulations.
However, its meaning has been explained in revenue rulings and case law. The basic rule is that, to receive a distribution from a 401(k) plan on account of a separation from service, the participant must have experienced a bona fide termination of employment in which the employer/employee relationship is completely severed.

See e.g. Rev. Rul. 56-214, 1956-1 C.B.196; See also Barrus v. United States, 23 AFTR 2d 990 (DC NC 1969) (finding the participant had a true separation from service, even though he returned to employment with his former employer five months after he retired, because at the time of his retirement he had no intention of returning to work and was only able to return to employment following an unforeseen change in circumstances).

So - if at the time of separation you HAVE an intention of returning to work and you are able to return - that is not classified as bona fide termination of employment regardless of the time period.

HOWEVER

the discussion in Edwards v. Commissioner, T.C. Memo 1989-409, 57 T.C.M. 1217 (1989) (stating that “...the statute leaves no room for a finding or conclusion that the reduction in [a participant’s] work schedule from full-time to part-time constitutes a separation from the service”) with the conclusion in Revenue Ruling 69-647, 1969-2 C.B. 100 (holding that a participant sustained a “separation from service” upon retiring from the service of his former employer, even though he subsequently performed services for the same employer on a part-time basis, because he performed those part-time services as a bona fide independent contractor and not as an employee of the employer).

See here

https://www.irs.gov/pub/irs-wd/00-0245.pdf

Questions?

Expert:  Lev replied 9 months ago.

HOWEVER

the discussion in Edwards v. Commissioner, T.C. Memo 1989-409, 57 T.C.M. 1217 (1989) (stating that “...the statute leaves no room for a finding or conclusion that the reduction in [a participant’s] work schedule from full-time to part-time constitutes a separation from the service”) with the conclusion in Revenue Ruling 69-647, 1969-2 C.B. 100 (holding that a participant sustained a “separation from service” upon retiring from the service of his former employer, even though he subsequently performed services for the same employer on a part-time basis, because he performed those part-time services as a bona fide independent contractor and not as an employee of the employer).

See here

https://www.irs.gov/pub/irs-wd/00-0245.pdf

.

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