Can I Tap My Retirement Savings Penalty-Free at Age 55?

Q.: I want to retire at 55 and was under the impression I had to wait until I was 59½ years old to avoid the 10% early withdrawal penalty on my retirement savings. I recently read that if you leave your employer the year you are turning 55, you can take distributions from your 401(k) without penalty. Is this also true for a 403(b)?

--Yvonne Varas, West Babylon, N.Y.

A.: 403(b) plans are retirement savings accounts for certain employees in the nonprofit sector and public schools. The good news is that the withdrawal rules are the same for 403(b) plans and their corporate cousin, the 401(k): You won’t face the 10% early distribution penalty if you leave your job in or after the year you turn 55, although you will still owe tax on pretax contributions and associated investment gains.

Note that for the exemption to apply, you have to wait until you’re at least 55 to leave work, either voluntarily or involuntarily. If you quit your job or are laid off at age 54, you’ll still owe the penalty if you begin withdrawing the following year. “That’s something a lot of people don’t understand,” says Mike Piershale, president of Piershale Financial Group in Crystal Lake, Ill.

Another caveat: The exemption only applies to funds in 401(k) and 403(b) accounts. If you roll those funds over into an IRA once you leave your job and decide to pull money out, you'll be assessed the 10% early withdrawal penalty until you turn 59½. That's an argument for leaving the funds in your 401(k) or 403(b) until you reach that age, Piershale says.

Read next: How to Get Serious About Creating Retirement Income

Piershale has coached several clients through early retirement, weighing the merits of paying off their mortgage and other strategies to lower their expenses once they stop work. Of course, most Americans don’t have enough saved up to exit the workforce in their 50s. A financial adviser can help you determine whether your nest egg can go the distance, stress testing it under different market scenarios and assumptions about your longevity.

If your savings aren't up to the task, aim to continue stashing money away while staying at your current job or seeking work elsewhere. Savers who are ages 50 and up can take advantage of catch-up contributions that enable them to sock away an additional $6,000 annually into a 401(k) or 403(b) on top of the $18,000 a year allowed pretax for younger workers.