By Steve Seals
If you’re a Toyota Motor Manufacturing employee in Georgetown, Kentucky, you might be thinking about retiring early or moving on to another company. Under the Toyota rule of 55, you may be able to take money from your 401(k) to help you make that transition.
I’ve heard many of you talking and asking about the rule of 55—wondering what it is, whether it applies to Toyota, and if you can take advantage of it. I know you’ve worked hard, and you may have suffered injuries over the years from overuse of your joints and limbs and repetitive motions. In other words, you’re tired, and you want to retire.
In this article, I answer your questions and explain the rule of 55 to help you decide whether you want to take advantage of it.
The Rule of 55
The Internal Revenue Service (IRS) came up with the rule of 55 to exempt workers aged 55 or older who leave their companies from the early withdrawal penalty for taking distributions from employer-sponsored retirement accounts before the age of 59½. The rule applies to the 401(k) and 403(b) retirement accounts, not individual retirement accounts (IRAs).
Typically, if you take money from your 401(k) before you reach 59½ years of age, you would be hit with a 10% penalty for the early distribution. However, the IRS gave companies the option of adopting the rule of 55, and not every company has done so.
Toyota is a company that has established the rule of 55 in its 401(k) policies, offering this option to employees who have served the company for at least 25 years.
A Look at the Rules of the Rule of 55
To take advantage of the rule of 55, you must:
- Be at least 55 years of age or older
- Leave your employer on your own or at the employer’s request
- Have left your money in the 401(k) when you exited the company
You have to leave your job the same year you take the distribution from your 401(k). This means you can’t leave the company earlier than age 55 and then start taking money from your account when you turn 55.
The Pros and Cons of Using the Rule of 55
The Toyota rule of 55 works well for you if you’ve decided it’s time to move on, whether you’re retiring or taking another job outside Toyota. You can’t take another job at Toyota and use the rule of 55. And remember, if you meet all the criteria to avoid the 10% early withdrawal penalty, the rule of 55 also applies if Toyota decides to eliminate your position.
You can only begin the distributions after you’ve left your job and company, and the rule applies only to your most recent employer. If you have a 401(k) at an older employer, you can’t apply the rule of 55.
But if you’ve left Toyota and begun taking distributions penalty-free, you are allowed to begin working for another employer. At that point, you can begin contributing to an employer-sponsored retirement plan.
The money from your 401(k) can help you make the transition from working to not working or just moving on to another employer. However, taking money out of your 401(k) also means it’s no longer earning money for you. You might be reducing the money you have available to experience the retirement lifestyle you want.
Talk to a Financial Advisor
Deciding to take advantage of the rule of 55 depends on a lot of factors, including your retirement savings and investments outside your 401(k) at Toyota. As a Registered Investment Advisor Representative at Seals Financial Planning & Investments VI, I can answer your questions about the Toyota rule of 55.
Please give us a call at (859) 230-3476 if you would like to schedule a time to meet.
About Richard Stephen (Steve) Seals
Steve Seals is the owner and independent Registered Investment Advisor Representative at Seals Financial Planning & Investments VI, LLC, a financial planning services firm based in Lexington, KY. As an independent Registered Investment Advisor Representative with about two decades of experience in the investment and insurance industries, Steve’s firm is founded on getting to know each client personally, allowing him to provide sound financial advice throughout their career and into retirement. With the mission of guiding clients on the path to success, Steve is fueled by his commitment to excellence and goes the extra mile to make sure clients are fully satisfied. He believes in maintaining a positive mindset, creating partnerships with a purpose, and always striving for significant outcomes.
Born in Jenkins, Kentucky, Steve grew up with a love for basketball and serving his community. After high school, he served nine years in the United States Marine Corps, then earned a bachelor’s degree in accounting. He was eventually able to put his degree and desire to help others to work as a fiduciary financial planner. Prior to founding his own firm in 2014, Steve learned from working with Edward Jones, US Bank, University of Kentucky Federal Credit Union, and CUSO Financial. He also received his Security Series 63 and 65/66 through Keystone Financial Group, LLC, and holds various life, health, and variable insurance licenses.
Steve and his wife, Angie, have three daughters (Lauren, Peyton, and Ashton) and two grandsons (Kenyon and Kai). Steve holds a private pilot’s license, and the family enjoys sports, spending time at the lake, and traveling. To learn more about Steve, connect with him on LinkedIn.
