Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Ahhh...............taxes
Old 12-08-2012, 12:39 AM   #1
Recycles dryer sheets
 
Join Date: Jun 2012
Location: Seattle
Posts: 79
Ahhh...............taxes

Need a little help or maybe just a shove in the right direction for partial enlightenment.

Bear with me, just a little background, first:
DW and I, early fifties 3-4 years from FIRE, 55/56 or we think (Firecalc say fire away easy then); $1.3M mostly deferred now; 457,401k, traditional IRA's. About 7-8 accounts, some already consolidated to IRA's (didn't want to do all of them, just in case) Some taxable monies, $150k or so, short term 6mo liquid, not really counted.

Concerned about the taxes and 10% penalty pre 59.5 and any other stumbling (unknown) blocks with respect to this issue. I'll certainly appreciate input or your previous experiences:
1. I beleive the 457's are ok once the DW get's to 55 and "retires", how about my 401k? Previous 401k not rolled? Penalties? I thought it depends on the plan administrator rules (made-up)? Contact each one independantly, I guess?
2. Any other recommnedations for rollovers or different planning?
3. Or, do I bite the bullet and get a tax accountant to help me out?

Thanks in advance. James
__________________

__________________
jime444 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!

Old 12-08-2012, 04:59 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,616
Smarter folks than I will chime in here shortly I'm sure. It seems your situation is that 401K/403/tIRA money won't be available without penalty until you are 56 1/2 and you are concerned about paying the bills from 55/56 until then, right? I think your main answer is going to be the rule known as 72t which relies on "substantially Equal Periodic Payments" (SEPP). You can do a search here to find out more,but this allows you to access the money early without the 10% penalty, but there are some restrictions.
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 12-08-2012, 07:19 AM   #3
Thinks s/he gets paid by the post
 
Join Date: May 2005
Location: Texas
Posts: 1,038
Does your employer allow you to leave your money in the 401k after retirement? If so you can take money out after retiring at 55 or older without penalty. (If they allow annual distributions.) I can take money out twice a year if I want. Haven't done so yet though I take the dividends.
__________________
In theory, theory and practice are the same. In practice, they are not.
Lazarus is offline   Reply With Quote
Old 12-08-2012, 07:55 AM   #4
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 10,163
As I understand the rules, you can take money without penalty (but still with the tax consequences of that income) if: 1) you are 55 or older; 2) you have retired directly from that job; and 3) if your 401k plan allows it (i.e. -- you may be forced to take a lump sum, which would be a big slug of taxable income, if your 401k does not allow smaller distributions.)

If you would be forced by the 401k plan to take a lump sum and you don't want to pay the taxes inherent in that, do a rollover to an IRA and then use 72t distributions if you need some the money. This is also the only way you can get the 401k money from a previous employer without penalty -- rollover and 72t.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 12-08-2012, 08:00 AM   #5
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,535
Quote:
Originally Posted by Gumby View Post
As I understand the rules, you can take money without penalty (but still with the tax consequences of that income) if: 1) you are 55 or older; 2) you have retired directly from that job; and 3) if your 401k plan allows it (i.e. -- you may be forced to take a lump sum, which would be a big slug of taxable income, if your 401k does not allow smaller distributions.)

If you would be forced by the 401k plan to take a lump sum and you don't want to pay the taxes inherent in that, do a rollover to an IRA and then use 72t distributions if you need some the money. This is also the only way you can get the 401k money from a previous employer without penalty -- rollover and 72t.
That is also my understanding.
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 12-08-2012, 08:05 AM   #6
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
As soon as the owner "separates from service" you can take income from the 457 without penalty, you obviously have to pay income tax. My 457 is a big part of how I'll fund the ER years before 59.5
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 12-08-2012, 08:17 AM   #7
Recycles dryer sheets
 
Join Date: May 2005
Posts: 192
Congrats on getting so close!

Quote:
Originally Posted by jime444 View Post
DW and I, early fifties 3-4 years from FIRE, 55/56 or we think (Firecalc say fire away easy then); $1.3M mostly deferred now; 457,401k, traditional IRA's. About 7-8 accounts, some already consolidated to IRA's (didn't want to do all of them, just in case) Some taxable monies, $150k or so, short term 6mo liquid, not really counted.
Let me just say, I really like how concisely you laid out your financial picture. You said in 50 words what some can't say in 500!

Quote:
Originally Posted by jime444 View Post
Concerned about the taxes and 10% penalty pre 59.5 and any other stumbling (unknown) blocks with respect to this issue.

***

2. Any other recommnedations for rollovers or different planning?
Someone already mentioned 72t, and I'll echo that. I'm younger than you but I'm already building the SEPP provision into my early retirement plans. In addition, to the extent you have Roth IRAs, you can withdraw the contributions* penalty free before 59.5. Finally, if you're pulling the plug at 55-56, you only have a 4-year gap to cover. You might be able to cover most or all of that from your liquid accounts if you already have $150K liquid plus 6 months' emergency.

Do you have a health care gap plan in place?

*Only contributions, not gain. I believe there's IRS guidance somewhere on how to calculate this and keep track of your contributions over the years. I had to do it several years ago for an emergency expense that I couldn't cover from my liquid funds.
__________________

Niko is offline   Reply With Quote
Old 12-08-2012, 08:19 AM   #8
Dryer sheet wannabe
 
Join Date: Oct 2012
Posts: 20
Quote:
Originally Posted by nun View Post
As soon as the owner "separates from service" you can take income from the 457 without penalty, you obviously have to pay income tax. My 457 is a big part of how I'll fund the ER years before 59.5
My understanding also. I have a 457 which was a deferred comp account from work. I had also earmarked it to tap before 59.5, if needed. Paying taxes out of it will hurt. No matter how much you tell yourself it has to happen, its hard to deduct taxes in your head when you look at the account.
__________________
csgraff is offline   Reply With Quote
Old 12-08-2012, 11:42 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,485
If I were in your shoes I would figure out what accounts can be accessed without penalty prior to 59 1/2 if you or DW retire after age 55. Sounds like the 457 and possible the 401ks. Then see if your taxable accounts and those accessible sources of funds can provide you living expenses from when you RE to 59 1/2.

If they are insufficient, between now and RE build up your taxable accounts to fill the gap.
__________________

__________________
pb4uski is offline   Reply With Quote
Reply


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


 

 
All times are GMT -6. The time now is 05:30 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.