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Rule of 55
Old 08-04-2006, 10:03 AM   #1
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Rule of 55

i recently retired, this week. I was thinking of rolling my 401k into an IRA so I could get into different funds. I am now in a Fidelity 401k. I just found out about the "Rule of 55". As I understand it I can take out as much as I want from my 401k without penalty. If this is true I was wondering if it would be better to payoff my mortgage, which is at 5.625 interest, or not. It would take all of my 401k fund to do this. Also, would it be better to rollover the 401k or not if I don't payoff the house, or even part of it?
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Re: Rule of 55
Old 08-04-2006, 10:15 AM   #2
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Re: Rule of 55

Quote:
Originally Posted by sooner
I was wondering if it would be better to payoff my mortgage, which is at 5.625 interest, or not. It would take all of my 401k fund to do this. Also, would it be better to rollover the 401k or not if I don't payoff the house, or even part of it?
Sooner, I suggest a forum search on this -- it's a very individual and complex decision that depends on tons of variables, not the least of which is personal preference. Usually when it comes up, it sets off a firestorm here.

If there is no penalty or restriction on taking that much from your 401K, it's just the same old pay-off or keep-the-mortgage question. You'll find lots of arguments both ways on recent threads.

FWIW, I paid mine off. It was an ARM that had been great since we took it, but was starting to rise steadily. Felt great, and yes, we are investing the same amout as our payment every month.
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Re: Rule of 55
Old 08-04-2006, 10:38 AM   #3
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Re: Rule of 55

Something to be said for being debt free.
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Re: Rule of 55
Old 08-04-2006, 11:01 AM   #4
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Re: Rule of 55

I hate debt with a mad passion, but this decision would depend on issues such as my other resources...pension? is it enough to live on? portfolio outside of this 401k? is it enough to live on? might you sell the house in the nearish future? have a spouse? spouse still working? spousal savings/pension? other dependents? got an emergency fund that allows you to sleep at night? any health/health insurance issues?
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Re: Rule of 55
Old 08-04-2006, 11:31 AM   #5
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Re: Rule of 55

While paying off the mortgage could be the right decision, I think it is unlikely if you are paying it off from a 401k. First, If you pull a lot of money out in one year you will likely push yourself into a higher tax bracket. Second, if you are able to deduct your mortgage interest you are getting a bit of a tax arbitrage by deferring the income, and deducting the expenses.
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Re: Rule of 55
Old 08-04-2006, 11:43 AM   #6
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Re: Rule of 55

Being debt free is great but I wouldn't cash out my retirement savings to do it. It will all be taxed as ordinary income. Also, I believe you are limited as to how much you can take out before 59.5 without being penalized.

Congratulations on the early retirement.
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Re: Rule of 55
Old 08-04-2006, 12:32 PM   #7
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Re: Rule of 55

The age 55 rule applies to people who terminate employment in the year they turn 55 or thereafter. Distributions from the 401k plan are without penalty, though are taxable. You would not be restricted to following SEPP payments. You are subject to plan provisions which may not allow partial distributions.
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Re: Rule of 55
Old 08-04-2006, 03:45 PM   #8
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Re: Rule of 55

It's funny. Before I found this board, I had heard about the 55/401K thing but wanted to have it verified so I asked my accountant. He wasn't sure so he looked it up and got back to me. Once I found this board, there were at least 20 posts about this. I think I need a new accountant. . There is a lot to be said for the search functions here. You can usually find a number of threads on topics like this or SEPP. Most of the questions I've had have been discussed here before and I found the answers or links to the answers using the search.
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Re: Rule of 55
Old 08-04-2006, 08:31 PM   #9
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Re: Rule of 55

Thanks for responses. I didn't know how search worked. Does anyone have preference of Vanguard funds opposed to Fidelity in general? I was all set to move to Vanguard IRA but not sure now
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Re: Rule of 55
Old 08-04-2006, 09:51 PM   #10
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Re: Rule of 55

Quote:
Originally Posted by sooner
Thanks for responses. I didn't know how search worked.* Does anyone have preference of Vanguard funds opposed to Fidelity in general? I was all set to move to Vanguard IRA but not sure now
Either one. People have kudos & complaints for both.

In very general terms, Vanguard tends to offer lower costs while Fidelity offers better customer service. But they compete against each other on those points, and lately it's like choosing between Tweedledum & Tweedledee.
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Re: Rule of 55
Old 08-04-2006, 10:04 PM   #11
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Re: Rule of 55

Hmmm

I'm a diehard Vanguard fan - but have owned Fidelity as late as 91. Other than Nord's comment both are good - and are in competition with each other(which is good for us customers) - my impression of Fidelity is:

If you tend toward hands on the throttle, play sectors, or like to slice and dice fairly thin - Fidelity might offer a wider range of suitible choices.

Of course - haven't looked in a while - so I may be er ah slightly off - like my Japanese current.

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Re: Rule of 55
Old 08-05-2006, 05:52 AM   #12
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Re: Rule of 55

Both Vanguard and Fidelity are fine. My preference is Vanguard for the low cost of their funds, and Fidelity for the individual stocks, but both are fine on either side.
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