Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Can you retire early using 401k?
Old 02-14-2007, 01:09 PM   #1
Confused about dryer sheets
 
Join Date: Feb 2007
Posts: 4
Can you retire early using 401k?

Brand new, so please be kind ;-)

I'm 49 and considering early retirement. I've laid out budgets and have a pretty accurate assessment of required living expensies, I think. Half of my income will come from rental property. But the other half would have to come from my 401K retirement plan from my current employer.

Given my age, is this wise, and is this feasible (without aggregious penalties)? Again, I'm sure this is basic, but I welcome advice, insights, and pointers.

Thanks in advance.

InSearchofBeauty
__________________

__________________
InSearchofBeauty
InSearchofBeauty is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Can you retire early using 401k?
Old 02-14-2007, 01:21 PM   #2
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,563
Re: Can you retire early using 401k?

Welcome to the board, Beauty.

There are a number of ways to extract money from your 401(k) after you stop working but before you reach the minimum withdrawal age. Or you could roll that 401(k) over to an IRA and withdraw it under those early-withdrawal rules. Or you could roll over to an IRA, convert that to a Roth IRA, and entertain yourself with yet a third set of early-withdrawal rules.

There are many ways to do it and they're all intended for different situations. Fairmark.com has a number of good summaries of 401(k) withdrawal methods, or you could ask a more specific question. It's all feasible and generally wise!
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 02:57 PM   #3
Confused about dryer sheets
 
Join Date: Feb 2007
Posts: 4
Re: Can you retire early using 401k?

Thanks for the pointer. From my quick perusal of that site, the IRS site, and form 590, I guess we are talking about SEPPs. Not wanting to ever be accused of being a tax guy, let me ask a few possibly dumb questions (in all cases I am trying to avoid the 10% early withdrawal penalty):

1. Does the SEPP have to be the same $ amount, or can it be a fixed percentage of the portfolio?

2. If I guess wrong (too low let's say), and I take another SEPP from the same portfolio to make up the difference in what I now realize I need to live?

3. Am I correct in thinking that I only need to "get this right" until age 59.5, and after that I can do with it as I please?

4. This would seem (to me) to be a common issue for retire early wannabees. Anyone have pointers to the classic sites or posts that deal with this topic?

Thanks in advance, I appreciate any and all suggestions.

InSearchofBeauty
__________________
InSearchofBeauty
InSearchofBeauty is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 03:04 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Mar 2006
Location: Houston
Posts: 2,155
Re: Can you retire early using 401k?

1. Same amount (unless using the Life Expectancy method)

2. I think you are allowed to make one correction, don't remember all the details.

3. After 59.5 you're free to do what you want.

4. Yes, it's a common question. Try searching for SEPP, 72(t), 72T

Good luck and congratulations on getting there.

Edit: Corrected 1.
__________________
Sam is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 03:17 PM   #5
Confused about dryer sheets
 
Join Date: Feb 2007
Posts: 4
Re: Can you retire early using 401k?

That search suggestions was great -- top hit returned this gem wich answered all of my questions:

http://www.retireearlyhomepage.com/wdraw59.html

One point that I took from this is that if I use life expectancy method, the $$ amount will be readjusted each year based on the new portfolio value and my new life expectancy. Sounds good to me, since that is likely to increase the distribution, and I was worried about locking in an amount too low if inflation picks up.

Thanks again to all. I'm sure I will have more questions on many other topics.

InSearchofBeauty
__________________
InSearchofBeauty
InSearchofBeauty is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 03:22 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2006
Location: Houston
Posts: 2,155
Re: Can you retire early using 401k?

Quote:
Originally Posted by InSearchofBeauty
One point that I took from this is that if I use life expectancy method, the $$ amount will be readjusted each year based on the new portfolio value and my new life expectancy.
Oops! That's new to me. I always thought that the amount is fixed (not even inflation adjusted).

Can anyone shed some light on this?

Edit: Never mind.

Yes, the amount is adjusted each year for the life expectancy method. I did know about it, but totally brushed it aside because the amount that can be withdrew is way too small.

__________________
Sam is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 03:40 PM   #7
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 80
Re: Can you retire early using 401k?

This is something I saved from an earlier thread.

I also visit many retirement-like message boards, and, I can’t really remember where I saw this, but some poster said that he/she was receiving PENALTY-FREE DISTRIBUTIONS FROM HIS 401K because he had reached the age of 55. So, I went to the IRS website on 401Ks and found that the IRS has a few EXCEPTIONS TO THE 10% PENALTY. One exception was that if YOU HAVE A SEPARATION OF SERVICE FROM THE EMPLOYER WHO IS SPONSORING YOUR 401K PLAN, AND YOU ARE 55 OR MORE, YOU CAN BE EXCLUDED FROM INCURRING THE 10% PENALTY.

__________________
AzDreamer is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 03:45 PM   #8
Confused about dryer sheets
 
Join Date: Feb 2007
Posts: 4
Re: Can you retire early using 401k?

I read that also, but noted the caveat that you had to separate at 55 (or older). Had you separated at 54, you could not use this method. Here's the reference I found:

"Note: There is one fine point that many people miss in taking penalty-free withdrawals from a 401k at age 55. To do so, you must terminate your employment no earlier that the year in which you turn age 55. (See IRS Notice 87-13) If you retired at age 54 and waited until age 55 to make withdrawals from your 401k, you would not be able to make unlimited penalty-free withdrawals. You could only make penalty-free withdrawals by using SEPP."
__________________
InSearchofBeauty
InSearchofBeauty is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 05:31 PM   #9
Moderator Emeritus
Khan's Avatar
 
Join Date: Aug 2006
Location: Pine Island, Florida
Posts: 6,801
Send a message via AIM to Khan
Re: Can you retire early using 401k?

Quote:
Originally Posted by Sam
1. Same amount (unless using the Life Expectancy method)

2. I think you are allowed to make one correction, don't remember all the details.

3. After 59.5 you're free to do what you want.

4. Yes, it's a common question. Try searching for SEPP, 72(t), 72T

Good luck and congratulations on getting there.

Edit: Corrected 1.
After 59.5 or 5 years, whichever comes LAST.
__________________
"Knowin' no one nowhere's gonna miss us when we're gone..."
Khan is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-14-2007, 06:01 PM   #10
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
Re: Can you retire early using 401k?

When I retire at age 55 (49 now) I'll be able to begin withdrawals from my TSP (government's version of 401k) without any penalties. My current plan, though is to try not to start withdrawing from that account for another year or two after retirement. Hopefully, my pension & DW's w*rk income will hold us over without needing to tap the savings for a little while.
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy

“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
martyb is offline   Reply With Quote
Re: Can you retire early using 401k?
Old 02-15-2007, 01:05 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Location: Los Angeles area
Posts: 1,387
Re: Can you retire early using 401k?

I retired a few months ago at 48. About 90% of my investment $$ are
in my IRAs, so I have started 72t withdrawals from my largest IRA. I am
using the life expectancy method. In addition to the retire-early-home-page
already mentioned, I have found

http://www.72t.net/

to be very useful. The most important thing to remember - once you start
taking 72t distributions, take EXACTLY the right amount out each year
(easy to calculate), and never add/withdraw any other $$ - the penalties
are very high.
__________________

__________________
learn, work, save, invest, fire
CyclingInvestor is online now   Reply With Quote
Reply

Tags
401k


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
The Retire Early Home Page Old Admin Forum Admin 79 05-19-2006 07:58 AM
How people find us... asian carp?? dory36 Forum Admin 4 05-27-2005 12:07 PM
new retire early home page article wzd FIRE and Money 55 01-15-2005 03:40 AM
Retire early, live longer dory36 Other topics 6 02-27-2004 08:36 AM

 

 
All times are GMT -6. The time now is 11:23 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.