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Author: heb Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Early Retirement Date: 7/28/1998 7:37 PM
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I am seriously considering 'early' retirement (current age=56) and am more than a little confused with all of the apparent options regarding 401(k) withdrawals. My 'funds' currently reside in 3 basic areas, Cash/Savings (25%); Rollover IRA (50%)(from previous employer) and a smaller 401(k)(25%) with my current employer. It is my desire to draw down somewhat equally from the cash & smaller 401(k) for the next 7 years and then reduce the withdrawals by the amount I expect to receive from Social Security. Of course I do not want to incurr any penalties for the withdrawals prior to reaching age 59 1/2 so that is the question. As I am retiring, inistead of changing jobs, can I do that? Where might I look for definitive rates of withdrawal? I can 'wait' until I am 59 1/2 to touch either 401(k) for that matter. Just not real sure the best course to follow.

Thanks for any replies.
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Author: Lempi Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4719 of 76421
Subject: Re: Early Retirement Date: 7/28/1998 7:49 PM
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You CAN remove funds from your 401K without penalty before 59 1/2 for several reasons. You need to set up a (I think it is called) 72T withdrawal plan. This plan must be at least five years long and the penalties for changing your mind before the end of it are quite severe.

This is a tricky area of the tax law and money spent on good professional advice will be well spent!

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Author: Tiggertoo One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4724 of 76421
Subject: Re: Early Retirement Date: 7/28/1998 10:06 PM
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>>>I am seriously considering 'early' retirement (current age=56) and am
more than a little confused with all of the apparent options regarding
401(k) withdrawals. My 'funds' currently reside in 3 basic areas,
Cash/Savings (25%); Rollover IRA (50%)(from previous employer) and a
smaller 401(k)(25%) with my current employer. It is my desire to draw
down somewhat equally from the cash & smaller 401(k) for the next 7
years and then reduce the withdrawals by the amount I expect to receive
from Social Security<<<

Welcome.

The post by Lempi is helpful, and you can make the withdraws from any savings plan you wish, but the calculation of how much to w/d has to be made for the total of the federally qualified retirement plans and not just the ones from which you want to make withdraws. Also, since you are under 59 1/2, you will need to carry the w/ds for 5 years or until you are 59 1/2 ---!!!!!!(WHICH EVER IS LONGER)!!!!!!! Emphasis added to get attention.

I second Lempi's advice to seek professional advice. I do not mean "financial planners" #$%&$#. Seek out a good CPA qualified in retirement issues. While the calcualtion is not overly complicated, it does carry large penalties for mistakes, and probably the most disturbing reason is that the IRS has not fully issued rules on this issue.

I am a CPA, and I am pretty well knowledgable in retirement issues, but it took me a long time and a lot of research to understand the issues enough to make the calculation for myself (I had another CPA verify the calculation just to be safe).

All said and done, Taking the early retirement was the best thing I ever did. Go for it and enjoy.

LOL...TTFN...I am TiggerToo

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4733 of 76421
Subject: Re: Early Retirement Date: 7/28/1998 11:19 PM
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Greetings, Heb, and welcome.

I am seriously considering 'early' retirement (current age=56) and am more than a little confused with all of the apparent options regarding 401(k) withdrawals. My 'funds' currently reside in 3 basic areas, Cash/Savings (25%); Rollover IRA (50%)(from previous employer) and a smaller 401(k)(25%) with my current employer. It is my desire to draw down somewhat equally from the cash & smaller 401(k) for the next 7 years and then reduce the withdrawals by the amount I expect to receive from Social Security. Of course I do not want to incurr any penalties for the withdrawals prior to reaching age 59 1/2 so that is the question. As I am retiring, inistead of changing jobs, can I do that? Where might I look for definitive rates of withdrawal? I can 'wait' until I am 59 1/2 to touch either 401(k) for that matter. Just not real sure the best course to follow.

Contrary to what others have said to you regarding 72t drawdown rules, I have some good news for you. You probably don't need to do that in your situation! I assume your cash/savings is currently in taxable accounts and not IRAs. Hence the pre-59 ½ rules don't apply. Your smaller 401k is with your current employer. It is a retirement plan. Retirement plans have a different "magic" age than IRAs. You can take penalty-free money from them after you leave your job when you are 55 or older. Therefore, as long as you don't move that money to an IRA, you can take installment payments from the 401k and only pay ordinary income tax. Almost all 401k plans will allow you to take payment in installments from two to 15 annual payments. Thus, figure out what you need from both sources of money, and set up your 401k installments accordingly.

If for whatever reason your plan will NOT let you take installments, then you'll be forced to move the cash to an IRA, and that in turn forces you into following 72t rules.

Regards…..Pixy



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Author: foolgary Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4739 of 76421
Subject: Re: Early Retirement Date: 7/29/1998 12:14 AM
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Try to get up on www.datachip.com/articles/finworks/fmpayout.htm. Play with and you can figure just any combination of withdrawal rate etc. About the only thing you had is the rate of return expected. Early retirement is great, enjoy life while you can if you able financally.

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Author: Nizac One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4741 of 76421
Subject: Re: Early Retirement Date: 7/29/1998 1:35 AM
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URL correction: http://www.datachimp.com/articles/finworks/fmpayout.htm

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Author: SanDiegoJay Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4764 of 76421
Subject: Re: Early Retirement Date: 7/30/1998 12:47 AM
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<Your smaller 401k is with your current employer. It is a retirement plan. Retirement plans have a different "magic" age than IRAs. You can take penalty-free money from them after you leave your job when you are 55 or older. Therefore, as long as you don't move that money to an IRA, you can take installment payments from the 401k and only pay ordinary income tax.>

I was always under the impression you had to wait until age 59 1/2 in order to take penalty free withdrawals from a 401(k).

In my case, I left a 401(k) balance with a former employer. I started a new 401(k) with my new employer. I am currently 48. If I retire at age 55, would I be able to take penalty free withdrawals from the 401(k) from my former employer? The materials I received when I left the company said I wouldn't be able to take withdrawals before age 59 1/2 unless there was a hardship. Are they wrong?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4766 of 76421
Subject: Re: Early Retirement Date: 7/30/1998 8:00 AM
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Greetings, SanDiegoJay, and welcome.

I was always under the impression you had to wait until age 59 1/2 in order to take penalty free withdrawals from a 401(k).

In my case, I left a 401(k) balance with a former employer. I started a new 401(k) with my new employer. I am currently 48. If I retire at age 55, would I be able to take penalty free withdrawals from the 401(k) from my former employer? The materials I received when I left the company said I wouldn't be able to take withdrawals before age 59 1/2 unless there was a hardship. Are they wrong?


Not necessarily. The law allows you to receive qualified retirement plan proceeds as early as age 55 free of any early withdrawal penalty. The plan itself, however, may say you may not begin retirement withdrawals until a later age. A significant number of plans still have that proviso. In that case, you can still get a lump sum free of penalty after age 55, but the taxes on large sums would be significant. The other alternative is to either leave it in the 401k or put it in an IRA and use 72t distributions. Your best bet is to read your old plan's summary plan description to see what that plan's provisions are and what distribution options you have.

Regards…..Pixy


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Author: heb Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4786 of 76421
Subject: Re: Early Retirement Date: 7/31/1998 6:41 PM
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If for whatever reason your plan will NOT let you take installments, then you'll be forced to move the cash to an IRA, and that in turn forces you into following 72t rules.

Regards…..Pixy

Thanks all for the replies..
In taking this info to my 'plan administrator', I discovered that the official retirement age for my company has been established as 65. According to the folks at American Century (where the funds are), my only option at my retirement age (56) is to roll it over to an IRA. Then I can either do the 72(t) thing or better yet, wait until I am 59 1/2 to start a withdrawal plan.
No real big deal, I believe it is more Foolish to draw down those monies that are not tax deferred?
Back to the old drawing board for a new plan.

Hal

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