Funding from 52.5 to 59.5

[daylatedollarshort]

I have only a few years worth of contributions in the current employers 401k, but I've kept my former employers 401k intact (super low fees). That one is off the table for age 55 withdrawls, isn't it?

Maybe not. We rolled over a previous employer 401K to the last employer's 401k. Now we have access to the amounts from both 401Ks we can draw down on prior to 59.5 without any early withdrawal penalties.

 

[sengsational]

Maybe not. We rolled over a previous employer 401K to the last employer's 401k. Now we have access to the amounts from both 401Ks we can draw down on prior to 59.5 without any early withdrawal penalties.

Wow! Sounds like it's possible for me to move a rollover IRA account and/or previous employer 401(k) account to my current 401(k) and have access at 55! I figured the previous employer 401(k) could be available with a temporary stop in a rollover IRA, but nice to know there's a direct route.

I suspect that its going to be an all or nothing transfer. In other words, I can't take a portion of a rollover IRA or a portion of a former employer 401(k) and move it...gotta move the whole thing?

Now I just need to figure out if going this route is better than just going the 72(t) route. I don't like the idea of locking in a 72(t) and then finding they change the PPACA subsidy cutoff and I'm locked-in to a fixed amount.

 

[omni550]

For those who are considering 72(t), please be aware that you do not need to include ALL of your IRAs in the calculation. You can have multiple IRAs and only use one for the 72(t) portion. https://www.irahelp.com/forum-post/16636-72t-multiple-iras

omni

 

[sengsational]

For those who are considering 72(t), please be aware that you do not need to include ALL of your IRAs in the calculation. You can have multiple IRAs and only use one for the 72(t) portion. https://www.irahelp.com/forum-post/16636-72t-multiple-iras

That's a good point. I looked that one up when started doing my analysis and learned there was some granularity in my situation (four 72(t)-able accounts).

The one account, though, the prospectus first says you can do SEPP's, then later it says

Because the Company cannot predict whether the series of payments will be substantially equal, the Company will report such withdrawls to the Internal Revenue Service as early withdrawls with no known exception.

Thanks a lot! So "the Company" is setting me up for a fight with the IRS!

 

[nun]

The rates are minimal and you could easily compensate for it by adjusting your portfolio into stronger income producing investments paying out 10%+ offsetting the interest.

Of course you'd be changing the risk in your portfolio. If you need to get at the IRA just do a 72t, why bother with paying interest or other fees. As a general rule it's difficult to get at IRA cash for good reason and the loan process is significantly different from 401k, 403b etc.

 

[nun]

Risk is not a factor as you change your risk and allocation if you take the loan or the equal distribution on the 72t. Infact you might be opening yourself up to penalties if life changes and now you need to change the plan in anyway. The loan is safer and offers a margin for error not found with a 72T

I thought that IRA loans weren't allowed?? Do you advocate using the IRA as collateral? I thought that wasn't allowed.

If you are adjusting your portfolio to offset interest and fees you will have by necessity changed your portfolio's risk, any "10%+" investment return comes with lots of risk. With the 72t you don't necessarily need to change your asset allocation, but I agree that a 72t needs to be carefully considered and I would only use conservative asset allocations to fund a 72t.

For those reasons I am not considering 72t, 403b loans, or IRA loans (that I didn't think were even possible outside of the 60 day short term withdrawal and payback scheme) to fund my early retirement.

 

[REWahoo]

not sure who told you IRA loan weren't allowed. We do them all the time at ML and i am not aware of any bank/investment firms that doesn't do them.

My understanding is the loan is considered a withdrawal subject to the 10% penalty and taxes if not repaid within 60 days. What am I missing?

Borrowing From Your IRA - SmartMoney.com

 

[nun]

1)Just because it's a 10% yield don't assume it's a greater risk. it's simply an investment you are not familiar with or have had access to in the past.

Wow an 10% return on something I'm not familiar with, why aren't I interested?

2) you could use a 4% or 3% investment to cover the interest charge and come out on top.

So why are you trying to sell +10% return investments?

A loan against your assets(ira or any other) gives you greater leverage in that you keep your current investment and yield, can take a higher amount 1 month, lower the next.
To put it in simple terms, It's a line of credit. If you don't use it, no Interest charges apply.

I thought it wasn't possible to use IRAs as collateral for a loan. How does your IRA loan scheme work?

 

[nun]

Back to the 72T- It most definitely changes your asset allocation since you are depleting your IRA investment every month you take the payment hence leaving you with more cash and potential for re-investing in equivalent securities with a lower yield. So adjusting your portfolio is going to happen with a 72t or a Loan.

The point is the 72t costs nothing, no fees or interest like the loan. So I don't need to adjust my risk/return profile to cover the extra costs of a loan. If I did do a 72t I'd be sure to periodically rebalance.

 

[daylatedollarshort]

not sure who told you IRA loan weren't allowed.

The IRS?

2. What happens if a loan is taken from an IRA? If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income. (Code § 408(e)(2) and (3))
If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed. (Code § 408(e)(4))


Retirement Plans FAQs regarding Loans

 

[nun]

If you want to through (sic) out the loan idea altogether then, you may want to adjust your other investment to high yielding securities Such as Corp High yield or CMO's using a PAC/TAC to protect against principle prepayment or extension risk) these offer relatively lower risk of principle and higher income.

Hope this helps

Hmmmm........nope I won't be doing any of that

 

[nun]

The IRS?

2. What happens if a loan is taken from an IRA? If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income. (Code § 408(e)(2) and (3))
If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed. (Code § 408(e)(4))


Retirement Plans FAQs regarding Loans

+1.

If ML and all the banks are doing this I'd love "money bags" to explain exactly what his firm is doing.

 

[Calico]

+1.

If ML and all the banks are doing this I'd love "money bags" to explain exactly what his firm is doing.

His biography says he is a "Merrill Lynch Financial Advisor."

Kind of interesting that he disappeared as soon as he realized the financial sophistication of the posters who responded to him.

 

[daylatedollarshort]

His biography says he is a "Merrill Lynch Financial Advisor."

Kind of interesting that he disappeared as soon as he realized the financial sophistication of the posters who responded to him.

His profile also said he has been a financial adviser for 20 years and his retirement date is 2043.

If he started work at 21, he'd be 41 now and retiring in 30 years from now when he is 71, and yet is trying to give investment advice to people on an early retirement forum.

 

[foxfirev5]

Wow 10% return - how can I lose? Of course on CNBC's American Greed last night the scheme guaranteed 12%. Dial it back to 10% and it appears reasonable and not greedy.
I think in today's environment the scamers out there need to dial it back a bit to say, 7%, and they'll get some takers.

 

[REWahoo]

Doesn't appear anyone here will help fill money bags' money bags...

 

[nun]

As soon as I saw 10% plus the alarm bells went off. And I did a double take with the idea that you can use an IRA for a loan. ML should be pi$$ed as the couple of postings made did nothing for their reputation.

 

[comicbookgujy]

His profile also said he has been a financial adviser for 20 years and his retirement date is 2043.

If he started work at 21, he'd be 41 now and retiring in 30 years from now when he is 71, and yet is trying to give investment advice to people on an early retirement forum.

Being in the Financial Service industry, I can tell you that most Financial Advisors are nothing more than sales dude with a nice suit and a fancy "VP" title.

It's amazing the crap I see they sell people, from annuities in an IRA to front load funds with 4% sales charge. And these are the people considered successful in our industry(commision)! Stick someone in a low cost ETF or Mutual funds and you're out of a job.

 

[rackingguy]

I imagine the chances of this are fairly low given that you're in MA, but if you're already doing some property management, can you purchase a rental property which throws off vacancy-adjusted income at a higher rate than you can get for an annuity or an i-bond? It's a little riskier, but it also gives you another place to potentially move, freeing up both upstairs and downstairs to rent for $3k total if you needed to. You have enough time between now and ER that you could possibly find a great bargain, as you're not in a rush from a real estate purchasing perspective. Nominally, rents should match inflation and the depreciation will provide you tax advantages.

 

[nun]

I imagine the chances of this are fairly low given that you're in MA, but if you're already doing some property management, can you purchase a rental property which throws off vacancy-adjusted income at a higher rate than you can get for an annuity or an i-bond? It's a little riskier, but it also gives you another place to potentially move, freeing up both upstairs and downstairs to rent for $3k total if you needed to. You have enough time between now and ER that you could possibly find a great bargain, as you're not in a rush from a real estate purchasing perspective. Nominally, rents should match inflation and the depreciation will provide you tax advantages.

That's an interesting idea, but I have a lot invested in RE already. I'd rather just move downstairs and get $1800/month in rent for the upstairs.

 

[sengsational]

I have only a few years worth of contributions in the current employers 401k, but I've kept my former employers 401k intact (super low fees). That one is off the table for age 55 withdrawls, isn't it?

Maybe not. We rolled over a previous employer 401K to the last employer's 401k. Now we have access to the amounts from both 401Ks we can draw down on prior to 59.5 without any early withdrawal penalties.

Status update: The monster check [direct rollover, not a 60 day] arrived Thursday night and was back in overnight mail in 10 minutes to the new (current employer) 401k custodian. Arrived Friday morning at 8:29. But they say they're going to sit on it for up to 7 business days!! I'm going to call and nag them several times a day because even at today's low interest rates, that's real money!

Anyway, thanks for the idea to get more into the "55 rule" bucket!!