All in retirement and no liquidity

[Safire]

Hi,

What advice would you give a family (a decade under 59.5) that has 99.5% of their net worth tied up in retirement accounts and very little to no liquidity? Is there a way to navigate this without incurring Uncle Sam's wrath? Help!

PS: I understand that it could have been so much worse and there could be ZERO net worth, but this is a challenging problem due to liquidity issues aside from monthly income.

 

[RetiredHappy]

You can do a 72t.

 

[Aerides]

Hi,

What advice would you give a family (a decade under 59.5) that has 99.5% of their net worth tied up in retirement accounts and very little to no liquidity? Is there a way to navigate this without incurring Uncle Sam's wrath? Help!

PS: I understand that it could have been so much worse and there could be ZERO net worth, but this is a challenging problem due to liquidity issues aside from monthly income.

Depends how young they are and how much they need to get to 59.5. Do you have more info you can share first? If we're talking a year or three, that's one thing, but 5 or more and a high budget need is going to be far trickier.

 

[retire48in2018]

72t is an option.


Perhaps, there are other options with assets - such as Roths more than 5 years, but that compromises longer term tax diversification.

Delaying retirement and putting emphasis on brokerage savings might be a consideration

 

[imbatman]

Get a smaller / cheaper home and use your equity....tap 5-year old Roth contributions....72T......none are slam dunks no-brainers unfortunately

 

[Willers]

Another option is a HELOC if the numbers work out. I think, as others have mentioned that a 72t is the option I'd use.

Information if you aren't familiar with it:
https://www.investopedia.com/terms/r/rule72t.asp

 

[Gumby]

Are they currently working? If so, when do they plan to stop? The answer makes a real difference in what I would advise.

 

[Jerry1]

One thing to do is to stop contributing to the 401K at work, if they're still doing that. I would pay in enough to maximize any company match, but any other savings, I would make to a taxable account.

Then, at 59.5, I would see how Roth conversions would work for them.

 

[CardsFan]

Safire,

Are you retired now? If not, when do you plan to retire?

If not retired, I would start plunking some money into Roth IRA's and/or after tax accounts. Yeah, you don't get the tax benefit now, but you will have more options later.

 

[FlaGator]

I tend to oversimplify, often to a degree others find irritating. With that advisory,
-if you're 10 years from penalty-free access to tIRA/401K, is there enough to pay the penalty and have it last? If not, is it any better under a 72T withdrawal plan?
-if not, keep working, cut your expenses, scale back 401K contributions to get just the max. match.
-After doing that, bank every available dollar until you have enough in regular/taxable accounts to make the plan work.

There is not "one simple trick", clever plan or shortcut on this. You either have enough $$ after taxes to last or you don't. Don't quit until you do.

 

[DrRoy]

Divert new cash away from those accounts to build some available funds. You can tap some retirement accounts at 55 if you are fully retired.

 

[MarieIG]

Safire, As noted above, we do need more information to provide any meaningful advise, including but not limited to:

Age of each spouse and percentage of assets held by each spouse in their retirement account;

Are one or both spouses working;

When is the money needed;

Ability to save at this point;

For what is the money needed.

 

[cathy63]

....tap 5-year old Roth contributions...

Just wanted to point out that you do not need to wait 5 years to remove Roth contributions. You can take contributions out tax and penalty free at any time. It's only the earnings that are taxed and penalized for early withdrawals.