I have heard so many rumors that I don't know what is true anymore.

If one has an IRA, 401K or 403(b) retirement vehicle he/she can begin to draw from it at 55?, 59 1/2?, or younger than 55?

I have been told that the age is not absolutely fixed and just depends when one retires. This sounds a little ludicrous. But is it true?

I'm 36 and want to retire by 55. Or is drawing from my retirement accounts at this age just a pipe dream?

I just read two books on the subject, so I'll venture an answer to your question.

Withdrawing funds from a standard IRA before the age of 59 1/2 carries a 10% penalty plus the deferred taxes.

I believe 401k and 403b withdrawals suffer similar restrictions. However, you can borrow from your 401k. You have to make monthly payments with interest, but that interest is paid to your (retired) self.

Ajit

Titfry,

<<I have heard so many rumors that I don't know what is true anymore.

If one has an IRA, 401K or 403(b) retirement vehicle he/she can begin to draw from it at 55?, 59 1/2?, or younger than 55?

I have been told that the age is not absolutely fixed and just depends when one retires. This sounds a little ludicrous. But is it true?

I'm 36 and want to retire by 55. Or is drawing from my retirement accounts at this age just a pipe dream?>>

Participants in a qualified retirement plan such as a regular company pension plan, 401k, or 403b may retire at age 55 and draw money from those plans without penalty. However, if they retire and transfer those monies to an IRA, then they can't take money without penalty from the IRA until they reach age 591/2. UNLESS, that is, they withdraw money from the IRA under the rules of Section 72t of the Infernal (sic) Revenue Code. Essentially, this is a means of converting the IRA into an annuity payable over life expectancy, and once started it must continue for a minimum of five years or until age 59 ½, whichever is longer. The same kind of procedure may be used in company plans for those who retire younger than age 55 and leave their money in those plans.

So have no fear - You may indeed retire at age 55 and be able to draw from your retirement accounts. Based on when and how you take the money, you will have a varying degree of penalty-free withdrawals available to you. The year before you're ready, you should see a skilled planner who specializes in retirement plan distributions so various withdrawal scenarios can be run for you. After all, you want to ensure you have enough income to live on while paying the minimum due in taxes.

Regards…Pixy

Greetings, Ajit, and welcome.

<<I just read two books on the subject, so I'll venture an answer to your question.

Withdrawing funds from a standard IRA before the age of 59 1/2 carries a 10% penalty plus the deferred taxes.

I believe 401k and 403b withdrawals suffer similar restrictions. However, you can borrow from your 401k. You have to make monthly payments with interest, but that interest is paid to your (retired) self.>>

The general rule you cited is correct. However, you can take money from an IRA without penalty at any age so long as the strict requirements of Sec 72t, IRC are met. As I pointed out in the response to Titfry, that is basically a method of withdrawing the IRA over one's life expectancy. Once begun, it must continue for the minimum of five years or until age 59 1/2, whichever results in the longest withdrawal period.

The same applies to 401k and 403b withdrawals if the retiree is younger than age 55. As to loans, though, that's an entirely different matter. First, the plan must authorize them, and not all do. Second, once the person is no longer an active employee very few plans will allow such borrowing. The vast majority that allow loans to active employees demand immediate repayment on separation from service. Very, very few will allow repayment after termination by separation or retirement. I doubt if there's more than a handful in the nation that will.

Regards....Pixy

Here is an url covering early retirement that you may find answers some questions.
http://www.geocities.com/WallStreet/8257/wdraw59.html

I hope this helps. the part I use is substantially equal payments as it gives me more $$$ each year rather than annuity.

John

By substantially equal payments I meant the amortization method. Please use the calculator to determine your choices. good luck John

<<<The general rule you cited is correct. However, you can take money from an IRA without penalty at
any age so long as the strict requirements of Sec 72t, IRC are met. As I pointed out in the response
to Titfry, that is basically a method of withdrawing the IRA over one's life expectancy. Once begun,
it must continue for the minimum of five years or until age 59 1/2, whichever results in the longest
withdrawal period.<<<<<<

Hi there...
Will you also be able to do this with Roth IRA's?
Start withdrawing before 59 1/2 based on one's life expectancy? Thank you,
stephanie

Greetings, Stephanie, and welcome.

<<Will you also be able to do this with Roth IRA's?
Start withdrawing before 59 1/2 based on one's life expectancy? >>

Well, that proviso may not apply because contributions may be taken at any time and they are considered the first dollars out of a Roth. As contributions have been taxed already, that's no problem. Thus, only the earnings taken prior to 59 1/2 pose the problem. General IRA rules (in many aspects) are to apply to a Roth, though, so it may be possible as to the earnings. But until I see what the IRS says I really don't know.

Regards.....Pixy

<As to loans, though, that's an entirely different matter. First, the plan must authorize them, and not all do. Second, once the person is no longer an active employee very few plans will allow such borrowing. The vast majority that allow loans to active employees demand immediate repayment on separation from service. Very, very few will allow repayment after termination by separation or retirement. I doubt if there's more than a handful in the nation that will.>

Good Points! Also keep in mind that if the plan does not allow repayment after you have terminated employment then the loan would result in a taxable event, i.e. the remaining principle on the loan will trigger a 1099-R to be issued to you in the year in which you default. This could even mean the normal 10% penalty for pre 59 1/2 withdrawl on top of regular income tax.

You would hate to have to keep working just to keep your employer from defaulting your participant loan. Especially while there was stream, mountain, desert, (insert whatever floats your boat), etc. with your name on it waiting for you somewhere. :)