What is the rule of 55 and how does it work?

By Karen Roberts, Bankrate.com

The rule of 55 can benefit workers who have an employer-sponsored retirement account such as a 401(k) and are looking to retire early or need access to the funds if they’ve lost their job near the end of their career. It can be a lifeline for workers who need cash flow and lack other viable alternatives.

Here’s how the rule of 55 works and whether you should consider using it.

The rule of 55, explained

The rule of 55 is an IRS provision that allows workers who leave their job for any reason to start taking penalty-free distributions from their current employer’s retirement plan in or after the year they reach age 55. Taking a distribution from a tax-qualified retirement plan, such as a 401(k), prior to age 59½ is generally subject to a 10% early withdrawa