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"Bridge" Funds
Old 12-14-2005, 09:04 PM   #1
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"Bridge" Funds

Hi -

My name is George.* I've been checking this site out for a few weeks and think it's great.* Decided it's time to join the fun.*

I'm 39 and planning to retire at 55, earlier if DW goes back to work (she's currently a stay at home mom).* Currently about 80% of our savings are in tax deferred accounts (401k for me, IRA for DW).* We recently started Roths and also have an after tax account.

My question is:* What's the best way to fund the years between my ER date and 59 1/2 when I can tap our tax deferred savings vehicles w/o penalty;* SEPP payments, aftertax savings, other?

Any insight would be appreciated.


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Re: "Bridge" Funds
Old 12-14-2005, 09:30 PM   #2
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Re: "Bridge" Funds

Welcome to the forum George.

As to your question, I'm sure mine will be the first of many responses, but I did it (am doing it, to be precise) with after tax savings. However, I retired at age 58 with only a little over a year to go until I could withdraw from my IRA/401k without penalty or SEPP. With your plans to RE at 55, there are probably better options and you will no doubt soon hear from others who have more pertinent experience and recommendations.

Glad to have you with us.


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Re: "Bridge" Funds
Old 12-14-2005, 10:01 PM   #3
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Re: "Bridge" Funds

If you are a Fed employee, and your 401k is the TSP, you can tap it penalty free if you retire in the year in which you turn 55...another shining example of your tax dollars at work...* Don't know about 'real' 401k's.


p.s. Seek and you shall find...from, addressing the 10% penalty for early distributions:

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:
From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55

(still) DC
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Re: "Bridge" Funds
Old 12-15-2005, 03:30 AM   #4
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Re: "Bridge" Funds

You could do it with withdrawals under 72t, but since you are 39 and looking to retire at 55, why not plan and use after tax funds which you can accumulate over the next 16 years and save the tax penalty?
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Re: "Bridge" Funds
Old 12-15-2005, 07:10 AM   #5
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Re: "Bridge" Funds

To tie all the prior posts together, your options are:

1. Use savings outside of retirement plans. That is what will do as the bulk of our assets are in after tax savings.

2. If you retire in the year you turn 55 or after, you can take money out of your 401(k) without incuring a penalty. BUT, if you retire before the year you turn 55, you will have to wait until age 59.5 to withdraw from the 401(k). You could, however, roll the 401(k) into an IRA and take withdrawls under 72t.

3. You can take withdrawls from the IRA and any rollover IRA from the 401(k) using substantially equal withdrawls under IRC section 72t. See for explanation.


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Re: "Bridge" Funds
Old 12-15-2005, 07:42 PM   #6
Confused about dryer sheets
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Re: "Bridge" Funds

Thanks to all for the welcome and the info.

Iíve been thinking that after tax (atx) is the way to go especially since I have 16 more years depressing) as uncledrz pointed out, and a fairly healthy start (80k). Iím not a govít worker so the TSP rules are N/A. The problem is that if I go the atx route, Iím way short of hitting my monthly savings target and am struggling with how to get there.

Here are some details:

Financial goals: Max 401k, fully fund Roths, build ďbridgeĒ fund to get from 55 to 59 Ĺ

Reality: I currently contribute 10% to my 401k (on income of 85-95k depending on bonus) and get a 100% match on first 5% , we donít contribute to DWís IRA (funded from 401k rollovers when she was working), we fund two Roths (self and DW), and put away 500/month in the atx account . I could max the 401k and not fund a Roth, but I thought more balance between Roths and 401k would be better from tax diversification standpoint.

My current 500/month atx savings is woefully short of what I would need to get the desired ER nest egg (about 625k in 2021 or approx 70k/yr, for 5 years, adjusted for inflation). Assuming 25% tax rate and 9% roi (6% adj for inflation), I figure I need to save just under 1,200/mo to get there or about 700 more per month than I save now.

I can get there by stopping both Roth contributions (for DW and self) and directing the funds to my atx account. Roths are not critical to the success of my current plan. We would be ok with just 401k, IRA and atx. I started the Roths because I liked the idea of tax free w/ds. Given this, what are your thoughts on giving the atx savings priority over funding Roths and maxing 401k? Once my income increases I would resume Roth contributions and eventually max the 401k .

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Re: "Bridge" Funds
Old 12-16-2005, 03:33 AM   #7
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Re: "Bridge" Funds

One suggestion is to invest the after tax dollars in tax deferred investments so that growth is not taxed until you are ready to use the funds. Examples of the same are growth/non dividend paying stocks or real estate. Each has its own risk/reward (and problems) but may well get the return you need plus defer the tax.
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Re: "Bridge" Funds
Old 12-16-2005, 07:20 AM   #8
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Re: "Bridge" Funds

* * I was also thinking of these same questions. Couldn't one withdrawl from their contributions that they made to their Roth over the past years without paying any form of tax or penalty. 2 IRA's maxed out over 15 years should add up to around 120-130k (contributions not interest) , I know IRA's contribution limits go up... when, 2009 maybe?? Thats around 26k-28k tax free you can withdrawl annually till 59 1/2. Then possibly roll your 401k over into an traditional IRA as stated and do the 72(T) option. This you'll have to do for at least 5 years (55-60), but after 60 you can withdrawl as you like and you can also start taking withdrawls tax free from your Roth.
* *Pros please correct me if I'm wrong because this would really bite me in the @$%#% later down the road...say 15 years.
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Re: "Bridge" Funds
Old 12-16-2005, 07:34 AM   #9
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Re: "Bridge" Funds

Welcome a-board FAH,

I'd say your plan is pretty good. For more in depth advice I suggest you read ESRBob's book (link at the bottom of the page). Your library might have it.


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