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401K: Retire at 54 vs 55
Old 06-11-2008, 04:38 PM   #1
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401K: Retire at 54 vs 55

This seems like a no-brainer, but because the decision can't be reversed, I thought I'd ask.

I turn 55 next year. My plan is to retire before the end of this year. My current 401K will be worth about $23.5k on the planned date. I don't need this money before I turn 59 1/2, but it would be nice to be able to get at it without penalty if I did. Obviously if I wait until next year to leave my job, I'll avoid the potential 10% penalty.

On the other hand, I have a boat load of vacation that I have to either use this year or lose it, but if I quit I'll get paid for all of it. If I leave this year I get paid for $7k worth of vacation (before taxes). If I leave next year I have to use or lose 14 days of vacation and then get paid for the remaining $2.5 worth of vacation and no potential 401k penalty.

I don't want to use the vacation, I'd rather have the cash. I can't see any financial reason to wait until January to quit. Am I missing something?
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Old 06-11-2008, 04:41 PM   #2
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Can't you just leave your money in the 401k until you turn 55 (whether you're at your current company or not)? I still have funds in 2 previous employers 401k accounts.

Cashing out the vacation this year does seem like a no-brainer.
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Old 06-11-2008, 05:10 PM   #3
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You may need to elaborate on the 401k problem. You sound concerned that the 401k will be withdrawn in a lump sum payment when you retire.

You should be able to leave it with your employer. If not you can roll it over directly from your 401k to an IRA. There is no taxable event when you do this, and your investment choices will improve. Just be sure you do a direct transfer without placing any 401k money in your own checking account. That causes tax problems.

I did a rollover very easily, but it was from Fidelity 401k to a new Fidelity IRA account.

Dan
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Old 06-11-2008, 06:07 PM   #4
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ItDontMeanAThing, I agree with you -- it seems like the only plus to waiting until next year is that you could get your 401k money without penalty. But you don't really see a need for it, and you must have finances well enough in hand without it. Think of it as a possible way to celebrate 5 years of retirement and get out with that vacation cash!

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Old 06-11-2008, 06:30 PM   #5
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You may need to elaborate on the 401k problem. You sound concerned that the 401k will be withdrawn in a lump sum payment when you retire.
It's an opportunity, not a problem. If one retires on or after Jan 1 of the year one turns 55 and is working for an employer with which one has a 401k, one can withdraw the 401k contents without penalty. If I quit this year and withdraw next year there is the 10% penalty. If I quit this year, I'd just roll it over into my IRA.
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Old 06-11-2008, 09:33 PM   #6
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OK, I remember that now. However, you still have to pay taxes. I really like having the tax deferred account where I can rebalance in conjunction with the taxable account (sell a taxable for a tax loss and buy it the same day in the tax-deferred account).

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Old 06-12-2008, 05:11 PM   #7
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I'm about the to do the same thing but I have descided to wait til after the first of the year to allow me to use the funds prior to 59.5. I plan to keep the taxes as low as possible during that year but descided to bite the bullet.

If I were in your situation I think I would cash out the vacation. For me the draw is bigger for the penalty free transfer.
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Old 06-14-2008, 03:03 AM   #8
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Interesting dilemma, but I'd go this year. If you really need the money, there are options, albeit not great ones, such as 72t or paying the penalty (which would only be $2,400 in your case). Another alternative would be to check into loan covenants from your 401k....can you take a loan out this year and then retire without paying it all back? If so, you could invest the loan into a "like" investment in case you need it, and repay over time. As I said, this isn't my favorite option, but just pointing out there are some things you could do.

I'm fortunate in this regard. I plan to rehire (yes, I spelled that correctly) at 52 (46 now), and was worried about getting to my money. However, my wife is 4 years older, so we'll be able to get to her 401k at that time with no penalties, and hers will last us easily until I'm 59 1/2.

Ah, the benefits of an older wife.
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Old 06-14-2008, 10:30 AM   #9
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If I were in your situation I think I would cash out the vacation. For me the draw is bigger for the penalty free transfer.
That's what I decided to do. I've purchased my ticket out of the country and started hacking away at the list of things to do before then.
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Old 06-16-2008, 08:33 AM   #10
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Ah, the benefits of an older wife.
yea- my wife's 55 now and her retirement investments are amassed at $2,000 (oh sorry $2,543)

good thing I'm 25 (or at least won't retire for another 30 years).
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Old 06-16-2008, 09:28 AM   #11
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If you are extremely sure you won't need this money until 59 1/2, you could just leave it in there. The biggest risk in that case would be higher tax rates five years from now.
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Old 06-16-2008, 02:42 PM   #12
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Hmmm I wonder if anyone ever rejoins the workforce at age 55 just to roll everything into the 401k and cash out without having to worry about 72ting.

Oohh "72t" is a verb now.
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Old 06-18-2008, 03:21 PM   #13
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Hmmm I wonder if anyone ever rejoins the workforce at age 55 just to roll everything into the 401k and cash out without having to worry about 72ting.

Oohh "72t" is a verb now.
Yowza! That would be a huge loophole. I'd be willing to bet it's not possible, but I don't know.

[edited]
I'm glad I didn't make that bet. Several sites say it's possible, but they also said that even though the penalty free withdrawal at 55 is allowed by the IRS, it must also be allowed by one's specific plan.
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