If I am turning 55 anytime during year 2011 and separated from work at age 54 or later, can I withdraw from my Rollover IRA (funds from pension plan and 401K) without the 10% early withdrawal penalty beginning on January 1, 2011?  If yes, I do not need to set up a 72t as long as I find a broker that permits partial withdrawl from my rollover IRA?  Are all those correct?

What if I decided to work again before I reach the age of 59 1/2?

Short answer... NO!

From our 72(t) FAQ

Q. What is the Age 55 Exception to the 10% penalty?

A. The age 55 exception only applies to distributions made from qualified employee rertirement or annuity plans - it does not apply to an IRA. Distributions made to you after you separated from service with your employer, if the separation occurred after you reached age 55, are not subject to the 10% penalty tax. 

For the definition of age 55, IRC Notice 87-13 states... "such separation from service occurred during or after the calendar year in which the employee attained age 55."

You may want to spend a little time reading some of the information on this site.

Those provisions can be illustrated by an example. Suppose you turn 55 in June, 2011 but separate in March at age 54. You will still qualify for the penalty waiver because you separated IN the year you turn 55 or later even though you did not reach 55 by the separation date.

However, the penalty is only waived for distributions directly from the plan of the employer you separated from and only for distributions taken after the separation. If the plan allowed you to take an in service distribution in January, 2011 while you were still employed, the penalty would apply because that distribution was taken prior to separation from service.

Now lets say that you rolled over the plan to an IRA instead, but decide to return to work rather than start a 72t plan. If your new employer will accept an IRA rollover, you could roll your TIRA into the new employer plan. Then if you separate again in 2012 at age 56, you still qualify for the penalty waiver because the funds are now in the new employer plan and you separated from the new plan at age 55 or later.

Many of the exceptions in Sec 72t apply to either IRAs or employer plans and some apply to both. As you can see, there are plenty of planning opportunities to be researched.

Dollar amounts are samples only:

Maybe separating from employment at age 55 in 2011 after birthday.

401K balance = $175K (also will have loan balance of $30k after retirement, original amount 50k) 

After retirement will withdraw total 401K balance to pay off debts and pocket the rest.  (No 10% penalty here right).  What do I do with the loan balance of 30k? Do I have to pay 10% penalty based on original amount of 50k?  How do I avoid paying 10% penalty on the loan original amount or loan balance or both?

Total Lump sum pension amount will be rolled over to an IRA and SEPP (72t) it out. 

Happy 4th of July to everyone.

> (also will have loan balance of $30k after retirement, original amount 50k) 

Although employer plans vary considerably, it is common for any outstanding loan to become due and payable on the date of separation from employment. The reason for this is that loans are usually repaid via deductions from your salary... and that ends on the date of separation.  I would check with your company HR department or person to see what your particular plan requires before assuming that you will have a "loan balance" in retirement.   

Ed