You are referring to the rule that states that distributions from your qualified plan (including 401k, profit sharing, money purchase plans and 403b plans) after you separate from service with your employer will not be subject to the 10% early-withdrawal penalty, provided the separation occurs in or after the year you reach age 55.
Because this rule is based on you leaving the services of the employer that offers the qualified plan, it does not apply to IRAs. Any amounts distributed from your IRA before you attain age 59 ½ will be subjected to an early-withdrawal penalty, unless you meet an exception to the early-withdrawal penalty.
For more on exceptions to the early-withdrawal penalty, read our article Taking Penalty-Free Withdrawals from Your IRA.
This question was answered by Denise Appleby
(Contact Denise)

  1. Do I still have to pay penalties and taxes on money that I don't roll over from a ...

    It depends. Let's address the two penalties that will apply - the 10% early-withdrawal penalty and the 20% federal withholding ... Read Answer >>
  2. What are the penalties for withdrawing from my Traditional IRA less than a year after ...

    Withdrawals from your Traditional IRA will be treated as ordinary income, and if you are under age 59.5 when the distribution ... Read Answer >>
  3. As a temporary resident of the US, can I withdraw funds from my Traditional IRA without ...

    Should you decide to invest in a Traditional IRA and receive a tax deduction for your contribution, the amounts that you ... Read Answer >>
Related Articles
  1. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  2. Retirement

    What Happens to a 401(k) After You Leave Your Job?

    Find out what happens to your 401(k) after you leave your job. Learn about your five primary options, including cashing out and rolling over to a new plan.
  3. Retirement

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  4. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  5. Retirement

    Guide To 401(k) And IRA Rollovers

    Follow the steps detailed below when you need to roll over your 401(k) or IRA account to be sure you preserve tax benefits and avoid penalties.
  6. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  7. Retirement

    How an IRA Works After Retirement

    You've read a lot about saving for your future retirement with IRAs. But what happens to the account when the future is here, and you actually retire?
  8. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
  9. Retirement

    How a 403(b) Works After Retirement

    Everything you need to know (don't be afraid to ask) about handling your 403(b) plan when you retire.
  1. Substantially Equal Periodic Payment - SEPP

    A plan that allows individuals who have invested in an IRA or ...
  2. Premature Distribution

    Any distribution taken from an IRA, qualified plan or tax-deferred ...
  3. Withdrawal Penalty

    Refers to any penalty incurred by an individual for early withdrawal ...
  4. Direct Rollover

    A distribution of eligible rollover assets from a qualified plan, ...
  5. Eligible Rollover Distribution

    A distribution from an IRA, qualified plan, 403(b) plan or 457 ...
  6. Hardship Withdrawal

    An emergency withdrawal from a retirement plan that may be subject ...
Hot Definitions
  1. Nest Egg

    A substantial sum of money that has been saved or invested for a specific purpose. A nest egg is generally earmarked for ...
  2. Denial Of Service Attack (DoS)

    An intentional cyberattack carried out on networks, websites and online resources in order to restrict access to its legitimate ...
  3. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate and graduate students who demonstrate exceptional ...
  4. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  5. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  6. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
Trading Center