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I'm new to the board. I'm currently 42 and started investing about 1980. In 1990 I set set the goal for myself of retiring at 50 (2005) with an income of $50,000 in 1990 dollars. Now at 42, where most other people my age are thinking about how they're going to save for retirement, I'm thinking about retirement itself.

I have always put the maximum amount into my 401K (usually 15%) and have twice rolled over 401K money into my IRA. I have almost always put the full $2,000 into both my wife's and my IRA's whether they were deduductible or not. Compounding does work. We now have about half a million now in our IRA's. All of this has been done while (still) raising three kids and with a maximum combined income of $65,000. Currently our combined income is just $50,000.

The money we've invested has been 100% invested in stocks, most often with the T. Rowe Price mutual fund group. Now, I've gone more into the self directed IRA's with about 10-15 individual stock holdings most often in technology stocks. A bumpy ride but like a roller coaster, you feel good when you get off.

Zbar
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>with an income of $50,000 in 1990 dollars.
>Now at 42, where most other people my age
>are thinking about how they're going to
>save for retirement, I'm thinking about
>retirement itself.

Congratulations!

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%?

Thanks!

-Tom
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There is a rule that the IRS set up that allows you to avoid the 10% penalty. However there are strict limitations. You may take the money out as a series of annual (almost) equal distributions. The distributions must be taken out until the LONGER of five years or until you reach age 59 1/2. There are three methods the IRS allows to calculate the amount allowed to be withdrawn. Any variation from the IRS's rules and all ( including prior year) distributions become subject to the 10% penalty for early withdrawals.

Of course the distributions will be treated as regular income and subject to normal taxes to the extent that they are not receipt/return of your non-deductible contributions.

Zbar
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The phrase the IRS uses for these early distributions is "a series of substantially equal distributions." IRS publication 590 gives some info regarding the methods of calculation, but the best information I have found comes from financial planning books that are specifically focusing on this subject, and from private IRS rulings (which are usually answers to individuals questions).
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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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If you decide to take money from your IRA prior to your turning 59 1/2 you may be in for a nasty surprise from your State income tax as well as the Feds.. In California the penalty is an additional 9% over and above the regular income tax.
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