Ok, so many of us aren’t retiring early. But the IRS, in its wisdom, has set 59½ as the age at which “you’re allowed to have your own money now” for accounts such as a Solo 401(k) and a Roth IRA.

If you’re getting later on in your freelance career and eyeing an early exit — or just a slower gear — you probably assume your money is locked up until then, or, if you’re starting out, you may be wary about locking away your moolah for what feels like an eternity. Don’t worry, it’s not.

The money isn’t locked away; it’s fenced.

And there are two gates: Rule 72(t) and the Rule of 55. Both let you pull money out early without the 10% penalty. There are also IRS provisions for emergency withdrawals, but that’s an article for another day.

Why this matters

The usual advice from some rando on Instagram is to put everything in a taxable brokerage account because you can access it anytime. Yes, taxable brokerage accounts are great (I have one), but skipping a Solo 401(k)* or a Roth IRA means missing out on the amazing tax-saving benefits those accounts offer.*Yes, freelancers, you can have your own 401(k) where you are the employer and the employee!

Investing is the ultimate freelancer side-hustle

The goal here for us freelancers is to put 10-20% (more if you can) of our gross income into a Solo 401(k) and/or Roth IRA (inside these accounts, consider investing in a simple Index Target Date Fund). The idea is that the money grows tax-free and effort-free for decades while we hustle day-to-day.

This side hustle will literally make you millions in the background over a 40-year career. Don’t delay.

Rule 72(t): substantially equal periodic payments

The rule allows you to take payments at any age. The catches:

• The plan must run for at least five years or until 59½, whichever is longer. Start at 50, and you’re in it for nearly a decade. 
• Once it starts, you can’t stop or change it without being penalized, except in very narrow cases.
• Three IRS calculation methods set your payment: RMD (lowest, recalculated yearly), fixed amortization, and fixed annuitization. Fidelity has a calculator.
• You can have multiple 72(t) plans.
• You can keep working. Full-time, even. Nobody has to hang it up.
• Distributions are taxed as normal income (the same as withdrawing funds from a pre-tax 401(k))

Solo 401(k) and 401(k) money isn’t eligible directly — you’d roll some funds into an IRA first, which means your plan has to permit in-service distributions. Avoid using Roth 401(k) or IRA funds, as withdrawals before 59½ are not tax-free.

Example: At age 53, you roll a set amount of funds from your Solo 401(k) into an IRA and set a plan to withdraw $1,500/month until 59½.  That’s when all of your Solo 401(k) becomes accessible. Decide you need more a few years later?  You can create another 72(t) plan with a new IRA and a new withdrawal amount and schedule.

The Rule of 55

Leave your employer in or after the year you turn 55, and you can withdraw from that employer’s 401(k) — only that one. You can take a part-time job later and keep withdrawing.

For us solo operators, it should apply: your business is the employer; your Solo 401(k) is the plan. The problem is that the IRS has never explained what “separation from service” means when you’re both the employee and the boss. No guidance, no private letter ruling, crickets. It hasn’t said yes; it hasn’t said no.  That’s the definition of an unhealthy relationship if I’ve ever heard one.

Most practitioners think a genuine wind-down qualifies — not going part-time, not rebranding. S-corp owners have an easier story, since they’re literally W-2 employees of their own company.

Which one is yours

• Still freelancing, or under 55? Rule 72(t) on a rolled-over IRA. It works at any age; it’s unambiguous for the self-employed, and you don’t have to shut anything down.
• Genuinely handing off the business at 55+? Rule of 55 — roll old 401(k)s and SEP-IRAs into your Solo 401(k) first, then walk away for real.

The bottom line

There is a but. Every dollar you pull early is a dollar that stops growing. Only pull money from your retirement accounts early if the math works long-term.  This is not a piggy bank to use for fun.

Talk to your accountant or a CFP before you do anything. Some accountants may be unfamiliar with this because they are too busy dealing with an overly complex tax system. CFPs will be on it.

This is education, not tax advice, and the IRS does not grade on effort.