Comments and thoughts with 6 months b4 FIRED

[02camp]

I have been lurking here a couple years and finally decided to post my situation. I'll be 56 in October and DW will be 53 in March. I have run my numbers thru FireCALC, RIP, RQC and ORP. I have spent considerable time with a Fidelity Account Specialist (I think that's his title) and my Financial Advisor who I'm contemplating letting go. We have always LBOM's. Everything and everyone says our numbers work. My retirement consist of a 401K and an IRA. Since the plan administrator does not allow periodic withdrawls, I will roll that into an IRA. The DW is state employed with a defined pension and health insurance perks for life. I'm still seeking advise on a few points of my plan.

First, in order to bridge the 3 year gap of 56.5 to 59.5, I'm debating whether to set up a 72T or purchase an annuity. I'm not crazy about either but I don't know of any other options. Pro's and cons for 72T are obvious. What is attractive about the annuity is no worries with the IRS or the market and I can tap into my IRA 2 years earlier if need be. This is IF I understand all of this correctly.

Second, I am taking a portion of my rollover to pay off the mortgage (about $40K). I'm told the 55 rule applies so there is no IRS penalty. What I haven't figured out is what tax bracket I may wind up in for 2014. It may be better to continue the mortgage payment with only a little over 3 years left from my FIRE date. I may need to speak with a tax accountant for that.

Finally I want to thank everyone for the info I have learned here. The main thing I believe that has helped me is learning what questions to ask. Looking forward to responses.

[photoguy]

Quote:

Originally Posted by 02camp First, in order to bridge the 3 year gap of 56.5 to 59.5, I'm debating whether to set up a 72T or purchase an annuity. I'm not crazy about either but I don't know of any other options.

If it's only a three year gap, why not just keep a stash of cash or short-term bonds?

[pb4uski]

From what you wrote it sounds like your employer 401k will allow penalty free withdrawals if your terminate service after age 55. If so, what withdrawals do they allow? In other words, how frequently and what minimums and maximums? Depending on what they allow it may be better to stay in the 401k and fashion your withdrawals to meet your needs until you reach 59 1/2 unless you have sufficient taxable account investments to get you to 59 1/2.

FWIW, I wouldn't be so eager to withdraw from the 401k to pay off the mortgage unless the mortgage has a really high interest rate - I think I would do 401k withdrawals sufficient to make the mortgage payments to lessen the tax bite. You could use TurboTax or Taxcaster to do a 2012 return with estimated 2013 numbers to get a notion of your tax situation.

Also, does your 401k offer a stable value fund? If so, and if it is paying a reasonable interest rate that would be another good reason to stay wiht the 401k because you can't get access to these sometimes attractive investments outside of a 401k.

[02camp]

Photoguy, how do I get my hands on the cash without getting hurt on taxes?

pb4uski, I've checked with the company's plan administrator. They do not allow periodic distributions, only a lump sum distribution. I would love to be able to leave the $$$ in the 401k and withdraw as needed. Thanks for the TurboTax idea, never thought of that. Looks like I've got some homework to do.

[pb4uski]

Any taxable accounts? If not what you could do (and do it before you leave) is to refinance your house to create a taxable account and use that for any living expense gap and mortgage payments until you are 59.5 especially if you have a stable value fund that pays anywhere close to your refinance rate.

Just remember, not only do you want to avoid the 10% penalty, you also want to avoid creating a lot of income in any given year that is subject to high taxes.

[02camp]

No taxable accounts. A refi is out of the question. Looks like a 72t is in my future. I spent most of yesterday on the IRS website reading about early withdrawal. Gave myself a headache and more confusion. I may be making a mountain out of a molehill.

Thanks for the ideas.