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I've been doing some retirement calculations as of late. The good news is that if we keep doing what we're doing (maxing out the 401k's and IRAs) and we should be fine to retire early (when I'm 50 and DH is 53). The IRAs should cover us for the 18 months until DH hits 55 and can access his 401k and start getting his pension. At 55, I'll receive the same.

Of course, I'd love to be able to retire even earlier than that but DH doesn't seem as gung ho as I am. He wants to enjoy the money now vs later. In addition, I think he believes he'll be bored without a job.

So going forward, my focus will be on asset allocation (I recently discovered the Boglehead forum) and debt elimination. The one 'entry criteria' I have for retirement is having our mortgage paid off. We're 3.5 years into a 30 year mortgage. I'm striving to have it paid off in no more than 20 years.

-Steph
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The IRAs should cover us for the 18 months until DH hits 55 and can access his 401k and start getting his pension. At 55, I'll receive the same.

You may need to re-think this and start putting money into taxable accounts to cover the time until you reach 59 1/2.

To be able to access your 401(k) without using 72(t)/SEPP withdrawals and not be hit with the 10% penalties, you need to remain an employee until the year in which you turn 55 (50 for qualified public safety employees).

If you are not qualified public safety employees, retiring at 50 or 53 means you need to take 72(t)/SEPP withdrawals if you don't want to get hit with the penalty.

From IRS Pub 575 on exceptions to the 10% penalty:

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:

· From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),


AJ
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"The IRAs should cover us for the 18 months until DH hits 55 and can access his 401k and start getting his pension. At 55, I'll receive the same.

You may need to re-think this and start putting money into taxable accounts to cover the time until you reach 59 1/2.

To be able to access your 401(k) without using 72(t)/SEPP withdrawals and not be hit with the 10% penalties, you need to remain an employee until the year in which you turn 55 (50 for qualified public safety employees).

If you are not qualified public safety employees, retiring at 50 or 53 means you need to take 72(t)/SEPP withdrawals if you don't want to get hit with the penalty.

From IRS Pub 575 on exceptions to the 10% penalty:

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:

· From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),

AJ "

^^^^^^^^^^^^^^^^^^^^

Right now I am looking into this issue - and it appears that the
interpretation is to allow access to 401K funds with no tax penalty
if you are over 55 and are "separated" from the employer.
The funds can't be rolled over into an IRA but if left in the 401K
the individual may access the funds. I am not clear yet on whether
the funds have to be taken over a five year period (i.e. if you start
at 55 you have to continue to 60 and cannot roll over the 401K
funds until you pass 60).
The folks that are supposed to know this stuff are not clear and so
far tend to say "Read the IRS regs". Interpretation seems to be
less thn clear though.

I'll have more info in a week maybe.

Howie52
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"He wants to enjoy the money now vs later. In addition, I think he believes he'll be bored without a job."

You might want to look at the "retired fools" board. There seem to be
quite a few discussions about retirement whats and hows over the
life of the board.

From my perspective, the dollar issues require predicting the future.
I am terrible at that sort of thing. Most of the suggested readings
on retirement suggest expecting 4% withdrawal as a "safe" approach.
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Right now I am looking into this issue - and it appears that the
interpretation is to allow access to 401K funds with no tax penalty
if you are over 55 and are "separated" from the employer.


If a plan is interpreting the law to allow penalty-free non-72(t)/SEPP withdrawals when the employee "separated" from service prior to the year that the employee turned 55, the plan would be in violation of the law.

The fact that the plan may allow someone to be in violation of the law probably won't hold much sway with the IRS - they will tend to punish both the plan and the former employee.

I am not clear yet on whether
the funds have to be taken over a five year period (i.e. if you start
at 55 you have to continue to 60 and cannot roll over the 401K
funds until you pass 60).


Taking prescribed withdrawals over a minimum 5 year period, or until 59 1/2 - whichever is later - is taking 72(t)/SEPP withdrawals - not using the penalty-free exception for separating from service in or after the year one turns 55.

AJ
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You may need to re-think this and start putting money into taxable accounts to cover the time until you reach 59 1/2.

To be able to access your 401(k) without using 72(t)/SEPP withdrawals and not be hit with the 10% penalties, you need to remain an employee until the year in which you turn 55 (50 for qualified public safety employees).

If you are not qualified public safety employees, retiring at 50 or 53 means you need to take 72(t)/SEPP withdrawals if you don't want to get hit with the penalty.


Bleh. I didn't realize that. Thanks AJ.

-Steph
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Right now I am looking into this issue - and it appears that the
interpretation is to allow access to 401K funds with no tax penalty
if you are over 55 and are "separated" from the employer.
The funds can't be rolled over into an IRA but if left in the 401K
the individual may access the funds. I am not clear yet on whether
the funds have to be taken over a five year period (i.e. if you start
at 55 you have to continue to 60 and cannot roll over the 401K
funds until you pass 60).
The folks that are supposed to know this stuff are not clear and so
far tend to say "Read the IRS regs". Interpretation seems to be
less thn clear though.

I'll have more info in a week maybe.

Howie52


Please let me know when you find out. Thanks.

-Steph
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"He wants to enjoy the money now vs later. In addition, I think he believes he'll be bored without a job."

You might want to look at the "retired fools" board. There seem to be
quite a few discussions about retirement whats and hows over the
life of the board.

From my perspective, the dollar issues require predicting the future.
I am terrible at that sort of thing. Most of the suggested readings
on retirement suggest expecting 4% withdrawal as a "safe" approach.


I've been reading over there lately. Quite frankly, I believe that DH's (and my, for that matter) perception is based upon family members' retirement attitude and experiences. My parents didn't subscribe to the work until you die theory. My mom retired at 53 and was anything but bored (unfortunately she passed a few years later). She went back to school in a topic she was interested in, worked part-time at our church (she was also very involved at church) and had the time to lunch and travel (to conferences, etc.) with her church lady friends. My dad retired at 61(?) and balked at first, thinking he'd be bored, especially since my mom had already passed. He's also anything but bored. He volunteers at church, takes a very active role with his young nieces and nephews and has a sister who's retired too so they hang out together. So to me, retirement is merely freeing up your time to pursue only those things you enjoy.

On the other hand, DH's father retired maybe 15 years ago (I'm not sure if it was by choice or not, I believe the company went bankrupt or something) and seems to have few interests other than the occasional round of golf when the weather is nice. I'm not sure when DH's mom retired but she continued to work part-time until last year (age 70/71). She does have slightly more interests than his dad does.

That said, we have 15+ years to go so it's entirely possible that DH's opinion will change after having worked 20+ years. We both love to travel and he's expressed interest in RV'ing so he may well decide that's more fun than work :-)

-Steph
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"I'll have more info in a week maybe.

Howie52

Please let me know when you find out. Thanks.

-Steph "

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

HR folks, a financial advisor, and a CPA are the ones I'm talking to
---- plus I just got hold of the IRS publication.
I'll have info in a weeks time.
However, I have finally gotten some feedback from HR which concluded
I have months to decide whether to retire rather than the two weeks the
folks initially said.

Howie52
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Again I am told the funds can be withdrawn without tax penalty -
the funds must be in the 401K - cannot be rolled over into an IRA, you
must be 55 or over, and you must be separated from the company.

I am still planning on referring this to one other CPA who knows
more about tax implications - since another poster indicated that
the interpretation was not correct.

So, we will continue to have some life on this board for another
week or so.

Howie52
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Again I am told the funds can be withdrawn without tax penalty -
the funds must be in the 401K - cannot be rolled over into an IRA, you
must be 55 or over, and you must be separated from the company.


If you "separate from the company" during or after the year you turn 55, this is correct. You cannot "separate from the company" before the year in which you turn 55 and then use this exception when you turn 55.

The OP in this thread indicated that her and her DH's ages when "separating from the company" were expected to be 50 and 53. In those cases, the OP and her DH would not be able to use this exception to access their 401(k)s at age 55, which is what they were planning on doing.

I am still planning on referring this to one other CPA who knows
more about tax implications - since another poster indicated that
the interpretation was not correct.


I don't see anywhere in this thread where that interpretation you gave was said to be 'not correct' - only where additional caveats were added.

To make things clear, the two ways discussed in this thread to withdraw funds from your 401(k) without penalty before age 59 1/2 are:

(1) separate from the company in or after the year you turn 55, or
(2) take 72(t)/SEPP withdrawals for a minimum of 5 years, or until you turn 59 1/2 - whichever is longer.

AJ
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