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401k options if ready to retire early?
Posted on 6/13/23 at 7:57 am
Posted on 6/13/23 at 7:57 am
I’m an idiot on this stuff. Is there a way to withdraw the interest penalty free or roll it into something else and access funds penalty free?
Or is the only option to wait until I’m an old geaser?
Or is the only option to wait until I’m an old geaser?
5
Posted on 6/13/23 at 8:16 am to BabyTac
quote:
401k
quote:
interest
I think you are doing it wrong.
Do you have more information that you can share?
Posted on 6/13/23 at 8:17 am to BabyTac
You can look up what 72T is and you can also look into the age 55 rule.
Posted on 6/13/23 at 8:27 am to meansonny
Let’s say I have $2 million in my 401K at 55. Is all of it stuck there sans penalty until I’m in my 60s? Are there any options to access it or interest associated with it prior to without penalty?
Posted on 6/13/23 at 8:33 am to Shepherd88
quote:
look into the age 55 rule.
Appreciate this! Looks like it solves my concerns!!!!
Posted on 6/13/23 at 8:34 am to BabyTac
Before 59.5, there are two typical options to withdraw penalty free:
1) 72t https://www.investopedia.com/terms/r/rule72t.asp
2) Rule of 55. Some 401k plans allow taking distributions penalty free if u retire at age 55. From what I understand this is plan dependent and may have special rules etc.
Sometimes the IRS has special exceptions for certain years if you are in a natural disaster area or covid for example back in 2020.
ETA: bod312 beat me to it. I was updating my post for Roth conversions.
1) 72t https://www.investopedia.com/terms/r/rule72t.asp
2) Rule of 55. Some 401k plans allow taking distributions penalty free if u retire at age 55. From what I understand this is plan dependent and may have special rules etc.
Sometimes the IRS has special exceptions for certain years if you are in a natural disaster area or covid for example back in 2020.
ETA: bod312 beat me to it. I was updating my post for Roth conversions.
This post was edited on 6/13/23 at 8:38 am
Posted on 6/13/23 at 8:37 am to BabyTac
There are probably more but generally there are 3 common ways to pull your money out of a 401k for early retirement.
1. Rule of 55
2. 72T (SEPP)
3. Roth conversion ladder
Roth conversion ladders provide the most flexibility but you have to be able to fund the gap (5 years) before the funds are accessible. Essentially you start doing roth conversions once you have retired. The conversion is taxable hence why you generally don't start until your normal income is low (to limit taxes). The amount you have converted to Roth can be withdrawn tax and penalty free after 5 years. Any gains on that conversion is not available tax and penalty free after 5 years if you are still younger than 59.5.
As mentioned you will need funds for the first 5 years and then your roth conversion ladder can be used to fund your life. Some common methods of bridging the 5 years are savings/checking, taxable brokerage account, previous roth conversions (greater than 5 years ago), roth contributions, etc. It is very flexible because you can convert any amount you want based on taxes, cost of living, etc. You can also convert a different amount at different times as well.
1. Rule of 55
2. 72T (SEPP)
3. Roth conversion ladder
Roth conversion ladders provide the most flexibility but you have to be able to fund the gap (5 years) before the funds are accessible. Essentially you start doing roth conversions once you have retired. The conversion is taxable hence why you generally don't start until your normal income is low (to limit taxes). The amount you have converted to Roth can be withdrawn tax and penalty free after 5 years. Any gains on that conversion is not available tax and penalty free after 5 years if you are still younger than 59.5.
As mentioned you will need funds for the first 5 years and then your roth conversion ladder can be used to fund your life. Some common methods of bridging the 5 years are savings/checking, taxable brokerage account, previous roth conversions (greater than 5 years ago), roth contributions, etc. It is very flexible because you can convert any amount you want based on taxes, cost of living, etc. You can also convert a different amount at different times as well.
This post was edited on 6/13/23 at 8:40 am
Posted on 6/13/23 at 10:05 am to BabyTac
Just remember that $2 million in a 401k isn’t the same as having $2 million in after tax accounts. Everything you take out is taxed as ordinary income.
Posted on 6/13/23 at 10:21 am to BabyTac
Read this MADfeintist How to access retirement funds early
It doesnt get into Rule of 55. Check if your employer allows it. I've read not all 401k plans are set up for it.
It doesnt get into Rule of 55. Check if your employer allows it. I've read not all 401k plans are set up for it.
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