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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: of 75340  
Subject: Re: Fool's Age Date: 9/3/1997 10:47 AM
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Greetings, Tom, and welcome to Fooldom.

<<I do have a question for you... Your nest egg is primarily in your 401K (or IRA), and you plan to retire at 50. Won't you end up paying the 10% penalty for withdrawing before 59 1/2?

I'm only 26, and I've started my own SEP. (I'm self-employed.) However, I think I'll also be able to retire before 59 1/2, so I should have a significant amount of my savings not tax-deferred. Do people agree? What amount should be not tax-deferred? 50%?>>

Both Zbar and Mszen gave you a good explanation of how to avoid the 10% premature distribution excise tax on retirement plan withdrawals prior to age 59 1/2. The methods provided for this are covered under Section 72t or the Infernal (sic) Revenue Code. Who, though, knows what this will be 33 years from now when you get to that age? :-)

As far as to the amount that shouldn't be tax deferred, that will vary from person to person and from tax change to tax change. At your age, you should keep an eye on the rules that are forthcoming on the new Roth IRA to be available on 1/1/98. As long as those rules remain in effect (i.e., taxed deposits, but untaxed withdrawals), you can make out like a bandit years from now. Were I your age, I would use that vehicle to the max as long as it was available. Just one Fool's opinion FWIW.

Regards........Pixy
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