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|Subject: Re: Is IRA appropriate for early retirement?||Date: 1/18/1998 3:18 PM|
|Author: TMFPixy||Number: 1367 of 81632|
<<To look at the value of the tax-deferred growth aspect of an IRA (401(k), 403(b), etc) run some numbers: Take a $2000 annual investment (max IRA annual contribution) and grow it at 25% (to be broadly consistent with the various Foolish screens) for 30 years (I'll let you retire at 50, just to keep the numbers round). Then do the same, but reduce your growth rate by 15%, 28%, and 33.6% at various break points in your 30 years of investing, to be consistent with your tax bracket changes as your career progresses and the fact that now you're not investing in a tax deferred environment. You'll find the difference over the time frame to be quite astonishing for not having had tax-deferred growth.
That said, next consider two things: a) the brute force of simply paying the early withdrawal penalty of what you might take out annually, or as a lump sum, for those 9.5 years before you turn 59.5 as compared to the value of that portfolio at age 50; alternatively, b) setting up a program of "substantially equal withdrawals" forever (or maybe only until 59.5; TMF Pixy can answer such a question in the Retirement Planning message board) from your IRA (401(k), and I think, 403(b) retirement plans would have to be rolled into an IRA to do this) and thereby avoid the early withdrawal penalty.>>
It would make for an interesting study that would quickly bog down in tax deferred versus taxable; Roth vs other tax deferred; 20% vs 28% capital gain tax; part of total return to be allocated to dividends vs price appreciation; needed withdrawal vs 72t mandated withdrawal; and a few others I haven't thought of yet. For that reason, I'll volunteer you to do it and I'll check the numbers. How's that for a deal? :-)
BTW, you can take 401k/403b monies from the plans under Section 72t rules without having to go through the drill of transferring to an IRA first. Also, you can take them without worrying about the ten percent penalty at all if you wait until age 55 to retire (provided the monies stay in the plan as opposed to being transferred to an IRA). Also, when 72t withdrawals start, they must continue for the LONGER of five years or until age 59 ½. Start at age 58 and it goes until age 63. Start at age 50 and it goes until age 59 ½. Start at age 54 ½ and it goes for five years.
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