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NewHouse advised:
Be very careful here if you are considering moving your 401k money to an IRA. At age 55, you can withdraw money from your 401k without penalty (you must pay taxes on all such withdrawals) or hassles, but if you roll that money to an IRA you must wait until age 59.5 to do the same.

Well, almost. The IRS publication language is ambiguous and I thought so too till The Badger set me straight: You are subject to the 10% penalty for all except calculated 'substantially equal periodic payments' (SEPP) withdrawals IF you make withdrawals from a 401k plan held by an employer from whom you terminated your employment before the year you turned 55. For many early retirees this means that there is no real advantage to holding those funds in a 401k. For those leaving their job on or after the year they turn 55, the advantage stated by NewHouse is correct. Only the government could come up with rules like these.

In any event, many, such as Intercst and The Badger, will argue that setting up a SEPP (from an IRA or even a 401k) is really very easy for one of the three ways that they may be calculated, and one should not be afraid of taking that option. The disadvantages of using this option are that you may not be getting all the money you need to live on out of the SEPP distributions and the plan you set up must be continued for five years once you start it. If you screw up, the penalties are really outrageous and this is certainly an area of the tax law that could use some simplification. I really like what the IRS did with the minimum required distributions rules for IRA's when the owner reaches 70-1/2. Let's get those guys working on the early 401k distribution rules as well!

-- John
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